Inside the Bond Black Box

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Lynette Stewart
8 years ago
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1 Council of Infrastructure Finance Authorities

2 1 Goal for Today s Session Provide an Insider s perspective on the events/ cacophony leading to money for projects. Audience Participation Interactive Conversation

3 Agenda Overview of Municipal Market Perspectives from Insiders Bond Counsel Perspective Pre-Sale through Post Sale Documentation Financial Advisor/ Pricing Advisor Conception through Pricing Underwriter Pre-Pricing through Pricing 2

4 Greg Swartz William Henn Presenters Partner ~ McKennon Shelton & Henn, Insider s Perspective: Bond Counsel Lisa Daniel Moderator Senior Vice President ~ Piper Jaffray (602) greg.g.swartz@pjc.com Managing Director ~ The PFM Group Memphis, Tennessee Insider s Perspective: Financial Advisor/Pricing Advisor Darci Doneff Managing Director ~ Piper Jaffray Minneapolis, Minnesota Insider s Perspective: Underwriter 3

5 4 Overview of Municipal Market Business Day Most Activity: Tuesday to 7:00 AM ET 2:00 PM ET 7 Hours/Day over 3 Days A lot happens in a short amount of time. However, the assembly line for a bond issue begins weeks, months, or even years prior to the day of sale.

6 5 Overview of Municipal Market Market Activity Activity Per Active Total Activity Business Day Year # $ (Billions) # $ (Billions) ,213 $ $ ,117 $ $ ,248 $ $ ,048 $ $ ,845 $ $92.6 YTD ,335 $ $62.3

7 Overview of Municipal Market Timeline for a Bond Issue Pre-Sale through Pricing ~ Varies by weeks, months, or years. New Credit vs Existing Credit New Issuer vs Existing Issuer New Structure vs Existing Structure New Money vs Refunding Pricing through Closing Typical: 2 Weeks Assertive: 1 Week Less Common: 3+ Weeks Closing through Post-Sale Until Maturity 6

8 7 Bond Counsel Perspective Level of Involvement Pre-Sale to Pricing ~ Bond Counsel plays a dominant role in documenting the proposed issue. High Moderate Low Conception Pre-Sale Pricing Closing Post-Sale

9 8 Bond Counsel Perspective Pre-Sale Documents Issuer Authorizing Resolution Supplements to Master Indenture/Resolution/Trust Issuer Certificates Purpose/Objective of Pre-Sale Documents Valid and enforceable security. Conform to legal requirements. Conform to prior debt. Update issuing structure. Define responsible/accountable parties. Issuer s Focus on Pre-Sale Documents

10 9 Bond Counsel Perspective Sale Documents Preliminary Official Statement Agreement Among Underwriters Bond Purchase Agreements Purpose/Objective of Sale Documents Valid and enforceable security. Disclose all rewards, risks, and remedies. Detail specific transaction. Define relationships within specific transaction. Issuer s Focus on Sale Documents

11 10 Bond Counsel Perspective Post-Sale Documents Opinions Final Official Statement Tax Compliance Blue Sky Memorandum Disclosure IRS Forms Purpose/Objective of Post-Sale Documents Valid and enforceability security. Refine terms and conditions based on sale results. Define ongoing disclosure requirements. Issuer s Focus on Post-Sale Documents

12 11 Financial Advisor/Pricing Advisor Perspective Level of Involvement Conception to Pricing ~ Financial Advisor plays a dominant role in monitoring the pricing of the issue. High Moderate Low Conception Pre-Sale Pricing Closing Post-Sale

13 Financial Advisor/Pricing Advisor Perspective Conception Planning and Structure Transaction Structure and Program Cashflows Default Tolerance Analyses Other Rating Considerations/Dialogues Timing Investor Relations Strategy Methodology for Sale Negotiated, Competitive, Hybrid, Private Placement Selection of Underwriting Syndicate (if negotiated) Design of Notice of Sale (if competitive) Best Practices during Conception Stage 12

14 Financial Advisor/ Pricing Advisor Perspective Pre-Sale Continued update of transaction structure and program cashflows Develop call, couponing and term bond strategies Independent Market Research Market Comparables, Issuer History, Secondary Market Analysis Market Conditions Consider State specific trading ranges Independent Pricing Targets Set Designation/Liability Rules Advertising: Investor Roadshow, Print, Media, Radio Develop Market Access Strategy Best Practices: Developing Expectations 13

15 14 Financial Advisor/ Pricing Advisor Perspective Pricing Negotiate Initial Pricing Levels Review Initial Pricing Wires Monitor Market Activity Monitor Order Activity Consider Proposed Structure Changes Negotiate Final Pricing Levels/BPA Post-Pricing Post-Sale Evaluation Investor Feedback UW Syndicate Performance Analysis of Post Sale Trades

16 15 Underwriter Perspective Level of Involvement Pre-Pricing to Pricing ~ Underwriter plays a dominant role in pricing the issue. High Moderate Low Conception Pre-Sale Pricing Closing Post-Sale

17 Underwriter Perspective Pre-Pricing Focus Understand the Deal Center of Communication Efforts Investor Relations Strategy Market Activity Market Updates Best Practices for Pre-Pricing Available to Banking Team, Issuer & Underwriting Team Advertising Timing Strategies Open Communication with Financial Advisor 16

18 Underwriter Perspective Pricing Focus Market Environment New Issue & Secondary Competing Issues Pricing Structure Fairness and Reasonableness of Pricing Connect Borrower with Lender Best Practices for Pricing Open Book Policy Communication with Syndicate Understand the Issuers Objectives Know the Investor Base 17

19 18 Underwriter Perspective Defining Some of the Pricing Jargon Beeps Bifurcate Bumps Cuts Cheap Going Away Scale Trifurcate MMD Ratios

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