Based in Houston, IES is one of several specialty contractor consolidators formed in the late 1990s. It has 50 separate offices and reported $1.44 billion in revenue in 2003. Until now, high debt was a consolidator’s biggest challenge, especially when severe downturns in electrical and telecommunications work hit them around 2001. It was less clear what effect that tighter surety credit, following years of surety losses, would have on specialty firms. IES officials could not be reached for comment.

IES’ troubles appear to have snowballed. In early August, the contractor announced that problems at big projects of one subsidiary required a delay in third-quarter financial results. Later that month, the contractor announced it might default on key loans and that auditors found problems in financial controls. That led to the company’s announcement that it may have to restate its financial results. IES stock took a beating and shareholders launched lawsuits.

On Oct. 28, Chief Executive Officer Roddy Allen added that the company was putting up for sale units with revenue of $289 million and $13.1 million in operating losses in fiscal 2004.

The announcements about surety problems were followed by a Nov. 22 announcement that the company raised $36 million through a debt placement. One analyst believes the company’s troubles may be deeper and that IES is now "blaming it on the surety," a firm IES has not identified.

"Even though IES has incurred no surety losses on any project in its history," losses by sureties have led them to increase prices and limit capacity, IES states. Unable to reach terms with its surety, IES cannot pursue some larger new projects "on a basis we deem to be financially acceptable," says Allen. IES intends to provide bonds on projects it deems attractive and is in discussions with its surety and, through its broker, with other bond providers. Still, IES is pursuing a strategy "that minimizes utilization of surety bonds," says Allen.