One of the biggest financing decisions that issuers face is whether to bring the sale to the market as a competitive transaction, a negotiated transaction, or a direct placement. Due to our vast experience with both, the Public Finance Group can focus on helping issuers determine the most appropriate method of sale.
Competitive Transaction
Our municipal advisors generally recommend a competitive transaction of sale under the following conditions:
- Market Familiarity: Market recognizes the issuer as a stable and regular borrower in the municipal market with an active secondary market.
- Strong Credit Rating: Issuer has a strong unenhanced credit rating.
- Strong Security: General obligation bonds backed by the issuer’s full faith and credit or revenue bonds with a historically sound revenue stream.
- Issue Size: Transaction is neither too large to be easily absorbed by the market nor too small to attract investors without a concerted sales effort.
- Structure: Short to medium term structure often attracts more interest in a competitive sale, since there is inherently more risk with a longer structure.
- Traditional Features: Bonds do not have overly complex characteristics.
- Stable Market: Relatively stable market conditions and evidence of market demand.
Negotiated Transaction
Our municipal advisors generally recommend a negotiated transaction of sale under the following conditions:
- Weaker Credit Rating: Issuer has a low unenhanced credit rating.
- Weaker Security: Revenue stream is newly established or coverage is lean for a revenue bond.
- Issue Size: Issue is too large to be easily absorbed at competitive sale or too small to attract sufficient attention.
- Long Structure: Longer maturities naturally carry more risk than shorter maturities and can be more difficult for an underwriter to sell without the ability to pre-market.
- Complex Features: Includes a complicated refunding or has other factors, such as a short call, that make the issue market sensitive.
- Volatile Market: Market volatility increases perceived risk and makes sale date flexibility important.
- Retail Participation: Issuer wants to encourage and prioritize retail participation within its boundaries.
- Underwriter Selection: Issuer wants to have input on how the bonds are allocated between underwriting firms to ensure distribution to local, minority or woman owned firms.
Direct Placements
Our municipal advisors generally recommend a direct placement under the following conditions:
- Issue Size: Issue is so small as to be cost prohibitive for a competitive or negotiated sale.
- Timing: Funds are desired more rapidly than could be achieved with a competitive or negotiated sale process.
- Structure: Short to medium term maturities are often the structures that direct purchasers are most interested in.
- Short Call Provision: Direct purchasers are often more willing to accept short call provisions.
- Challenging Credit: If the issuer is facing certain credit-related challenges, a direct purchase may be a viable option to raise necessary capital
- The Public Finance group will also evaluate all terms and conditions included in a direct purchase bid and provide recommendations regarding which terms are favorable to the issuer and which ones are not.
