Selling Your Bond After Passage

Lyn Gruber – Koppel & Gruber Public Finance

Debt Management Policies• Should be adopted by board

• Provides a road map

• Debt structure, issuance, and management

• Review periodically

Team Members

• Municipal Advisor

• Only team member with a fiduciary responsibility

• Represents the district

• Bond Counsel

• Renders opinion on the validity of the issue

• Drafts resolutions and other legal documents

Team Members

• Underwriter

• Works with district on negotiated sale

• Develops bond structure and timing

• Sells the bonds to investors

• Underwriter’s Counsel

• Typically selected by underwriter

Team Members

• Rating Agency

• Assigns a rating to the bond after reviewing the credit quality of the bond

• Periodically reviews the credit quality and may change the rating

• Credit Enhancer/ Bond Insurer

• Increases the district’s credit rating by providing insurance or other credit enhancement

Team Member

• Trustee/Fiscal Agent

• Makes sure the bondholders are paid

• Holds/invests proceeds

• Represents bondholders

• Disclosure Consultant/Dissemination Agent

• Works with district on continuing disclosure report

• Monitors rating changes and other “Material Events”

Method of Sale

•Competitive Sale

• Bonds advertised for sale

• Any broker dealer can bid on bonds

• Bonds awarded to the lowest interest rate bidder

•Negotiated Sale

• Underwriter brought on early in the process

• Bond terms negotiated between issuer and underwriter

Method of Sale

•Private Placement

• Debt sold to one or a few sophisticated investors

•Direct Placement

• Debt sold directly to a bank as an investment

• Competitive Sale

• Recommended whenever feasible

• Credit rating of at least single A

• Issuer is well known to the Market

• Bonds are full faith and credit of the issuer (GOs are!)

• Structure is not innovative

Method of Sale

Method of Sale

•Reasons for Negotiated Sale

• Poor credit

• Unusually large issue

• New to the market

• Volatile market

• Innovative structure

• “Story Bond”

Sizing the Bonds

• Bond Program=Dollar Amount on Ballot

• Multi-Year program

• Tranche• an issue of bonds derived from a pooling

of like obligations that is differentiated from other issues especially by maturity or rate of return (http://www.merriam-webster.com)

• Each tranche should be sized to last 3 years

Most Common Types of Bonds

• Current Interest Bonds (CIBs)

• Interest paid every 6 mos.

• Capital Appreciation Bonds (CABs)

• Investor receives a single payment at maturity

• Initial principal amount is reinvested at a stated compounded rate until maturity

• Convertible Capital Appreciation Bonds

• CABs for a limited period, then CIBs

CAB Restrictions (AB 182)

• Maximum Maturity of 25 Years

• Ratio of total debt service to principal amount not to exceed 4 to 1 for any bond series

• Must have a call provision beginning in year 10

• Maximum interest rate of 8%

• Board resolution stating intent to sell CABs

• Discussion at two Board meetings

• Board must be presented with overall costs

Post Bond Issuance

• Annual Continuing Disclosure Report

• Updates certain information from the Official Statement

• Requires disclosure of Material Events

• Arbitrage Calculations

• IRS Regulation

• Must be completed every 5 years

• Recommend having a calculation done in year 1, then evaluate frequency

Investor and Taxpayer Relations

• Investors

• Keep up with disclosure

• Answer rating agency questionnaires

• Taxpayers

• Keep promises made during election

• Communicate with stakeholders

• Remember-Always prepare for the next election

Resources

Government Finance Officers Association

http://www.gfoa.org

Municipal Securities Rulemaking Board

http://www.msrb.org/glossary

http://www.msrb.org/EducationCenter.aspx

Electronic Municipal Market Access

http://www.emma.msrb.org/