Frequent Questions
- Who typically uses a Financial Advisor?
- How can a Financial Advisor help an issuer lower its borrowing costs?
- If I engage a Financial Advisor, must I sell my debt in a competitive sale?
- Is my access to up to the minute market information better with a Financial Advisor or an underwriter?
- What are the roles of the various professionals in a bond issue?
Q: Who typically uses a Financial Advisor?
A: The use of financial advisors is widespread in throughout the United States. In some cases this is because state laws prohibit negotiated debt sales for certain types and sizes of issues. In these cases. financial advisors are engaged to prepare the debt issue for a competitive sale. Otherwise, financial advisors are engaged to assist issuers by guiding the issuance process from inception to closing, while remaining independent during the pricing process.
Q: How can a Financial Advisor help an issuer lower its borrowing costs?
A: There are various costs of issuance related to every bond and note sale. Typically a number of firms provide these services. A financial advisor can help keep these expenses low by independently requesting bids from each service provider. In some cases the services are fairly generic, therefore, it is a simple matter of the lowest bid getting the work. In other cases, for example, underwriters, the firms competing for the issuer’s business have varying capabilities. In such cases, detailed interviews are typically conducted to fully examine the attributes of each prior to making a final selection. In both cases, putting service providers in competition with one another always produces the best level of service in a cost effective manner.
Q: If I engage a Financial Advisor, must I sell my debt in a competitive sale?
A: No. Certain issues, due to size or complexity, are better sold in a negotiated sale where the underwriter, or underwriting group is selected in advance of the sale and participate in the preparation of the issue for market. Other, smaller or more straight forward issues can be effectively sold by way of a competitive sale. See the GFOA recommended practices for selecting a method of sale at http://www.gfoa.org/services/rp/debt/debt-selecting-managing.pdf.
Q: Is my access to up to the minute market information better with a Financial Advisor or an underwriter?
A: In today’s world of instant information dissemination, financial advisors have equal access to market data and trends. With the arrival of the internet, the same services that underwriters have had exclusive access to over the years are now widely available to FA’s and the public at large. Pricing wires, current sale results and generic scales for the full range of credit quality are among the data available through these services.
Q: What are the roles of the various professionals in a bond issue?
Issuer
- Assist with preparation of disclosure data
- Provide input for financing plan
- Make rating & insurance presentations
- Make bond payments
Financial Adviser
- Assist with the selection of other professionals required to execute the debt issuance
- Assist with the preparation of the Official Statement
- Provide financing plan and structuring advice
- Provide rating agency & bond insurer preparation assistance
- Provide a supplemental work resource for the issuer's financial staff
- Report unbiased market assessments and pricing analyses
- Provide post sale/construction period financial analysis
- Assist with selection of investment adviser for proceeds
- Provide on-going market surveillance and notice of refinancing opportunities
Bond Counsel
- Prepare bond resolution
- Provide Official Statement / disclosure preparation assistance
- Prepare various deal related legal documents
- Provide legal opinion to investors
Investors
- Purchase bonds
- Receive interest and principal payments from paying agent
Underwriter
- Perform due diligence on disclosure
- Prepare sales force to market bonds
- Sets initial interest rate scale
- Re-price issue if necessary
- Determines amount of sale that firm will actually underwrite
- Market bonds
- Investment Bankers
- Trader
- Sales Force
Rating Agencies/Bond Insurers
- Review creditworthiness of Issuer
- Rating agencies issue bond rating
- Insurance companies insure issue (if economically beneficial)
Paying Agent/Registrar (a bank)
- Authenticate bonds
- Receive interest and principal payments from issuer
- Make interest and principal payments to investors