NSW Government Agencies must review contracts, after changes to policy on Guarantees from Financial Institutions

An acceptable guarantee is a Guarantee that is:

• (Option 1) given by an APRA regulated Financial Institution;

• (Option 2) given by a Financial Institution that meets a rating threshold and is within certain limits (see below); or

• (Option 3) approved by Treasury in special circumstances.

A "Compliant Guarantee" is a Guarantee that is:

• (Option 1) given by a Financial Institution:

  • that is regulated by APRA; and

  • meets the Credit Quality Test;

• (Option 2) given by a Financial Institution approved by the Secretary (as listed in the 2025 Policy); or

• (Option 3) approved by Treasury in special circumstances.

Ensure financial institutions issuing Guarantees are both:

• APRA regulated; and

• meet the Credit Quality Test,

or are on the pre-approved list in Schedule A to the 2025 Policy (which is limited to certain government entities).

The new mandatory requirements under the 2025 Policy require Agencies to more actively manage Guarantees, so Agencies should consider prescribing minimum requirements for Compliant Guarantees in contracts rather than relying on a right to approve issuers post-contract.

Financial institution must have a credit rating of “A” or above (as assessed by Standard and Poors) or “A2” or above (as assessed by Moody’s Investors Service) or “A” or above (as assessed by Fitch Ratings).

If the sum of the notional face values of all Guarantees provided by that specific Financial Institution for the benefit of a specific Agency is greater than $1 million, then the Financial Institution must have a credit rating of “BBB-” or above from S&P Global and/or “Baa3” or above from Moody’s Investors Service and/or “BBB-” or above from Fitch Ratings and/or “B+” or above from AM Best.

As above.

Agencies are free to request / require higher ratings from financial institutions.

Total value of Performance Bonds held by an agency with an institution must not exceed 10% of the institution’s net assets.

N/A

For information – not a requirement under the 2025 Policy.

(Mandatory Requirement): Agencies must maintain a central register of active Guarantees

Agencies must maintain a central register of current Guarantees and provide a copy of this register to CCBS at least annually, no later than 31 October of each year.

Note: Agencies must provide a list of current Guarantees to CCBS by 31 March 2026.

Agencies to note 31 March 2026 deadline to comply with this mandatory requirement.

No impact on contract drafting.

(Mandatory Requirement): Compliant Guarantee status must be maintained over the life of the Guarantee

1. CCBS informs an Agency that a Guarantee ceases to be a Compliant Guarantee;

2. Within 14 calendar days of being notified by CCBS, the Agency must notify the affected counterparty and require it to, within 90 calendar days of being notified (Cure Period), either:

   1. replace the Non-Compliant Guarantee with a Compliant Guarantee; or

   2. post cash collateral equal to the face value of the Guarantee.

3. If not cured within the Cure Period, then the relevant Agency must call the Guarantee within 14 calendar days, unless:

   1. approved by the Secretary or Delegate not to do so; or

   2. the Agency is not permitted by legislation.

Agencies should consider including an entitlement for the Agency to direct counterparties to replace non-Compliant Guarantees in line with this mandatory requirement and acknowledging the right to call on the Guarantee if no replacement is provided.

(Mandatory Requirement): Agency to call Guarantee if rating drops to BB- or below

1. CCBS informs an Agency that the credit rating for a guarantor providing a Guarantee has deteriorated to a rating of S&P Global BB- (or equivalent) or below.

2. Within 14 calendar days of being notified by CCBS, the relevant Agency must call the Guarantee, unless:

1. approved by the Secretary or Delegate not to do so; or

2. the Agency is not permitted by legislation.

Agencies should consider including an express right to call the Guarantee in these circumstances.

(Mandatory Requirement): currency denomination of the Guarantee must match the currency denomination of the obligation being guaranteed

Agencies must ensure the currency of the Guarantee matches the currency of the underlying obligation unless the Secretary or Delegate approves otherwise.

Note: most Compliant Guarantees will be in Australian dollars.

Counterparties may request that Guarantees be issued in a foreign denomination but of equal value to the guaranteed amount required under the relevant contract.

Agencies to note this is now expressly precluded.

(Note): Agency must not agree to any contractual terms or conditions that prevent compliance with the 2025 Policy. However Agencies can impose additional requirements regarding the acceptance of Guarantees (including requiring higher ratings).