Q: Who typically uses a Municipal Advisor?
A: The use of municipal adivsors 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. municipal adivsors are engaged to prepare the debt issue for a competitive sale. Otherwise, municipal 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 municipal adivsor 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 municipal adivsor 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 municipal adivsor, 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 Municipal Advisor or an underwriter?
A: In today’s world of instant information dissemination, municipal adivsors 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
Municipal Advisors
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
Investment Bankers
Perform due diligence on disclosure
Prepare sales force to market bonds
Trader
Sets initial interest rate scale
Re-price issue if necessary
Determines amount of sale that firm will actually underwrite
Sales Force
Market bonds
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