While there are various ways state and local governments and related agencies (or municipal entities) can raise money to finance their capital projects, they often rely on the municipal securities market to do so. Issuing bonds, whether done once a decade or many times a year, generally requires municipal issuers to hire financial professionals.
Hiring Financial Professionals
When municipal entities issue bonds, they may hire a municipal advisor to provide advice related to the issuance. If issuing bonds in the public market (as opposed to a private placement) issuers or underlying borrowers, known as obligors, may also hire an underwriter to help bring the bonds to market. Both underwriters and municipal advisors must register with the MSRB and are subject to MSRB rules. Learn what to expect from these professionals.
Planning the Issuance
Issuers can use different approaches to issue bonds. The two most commonly used approaches are negotiated offerings and competitive offerings.
In a competitive offering, underwriters submit bids to purchase the issuer’s or obligor’s bonds in accordance with the terms set by the issuer/obligor in a Notice of Sale. Generally, the issuer/ obligor awards the right to purchase all the bonds to the underwriter that meets the requirements in the notice of sale and enables the issuer/obligor to borrow at the lowest cost.
In a negotiated offering, an issuer/obligor hires an underwriter to find investors for the bonds. An issuer/obligor approves the terms and conditions of the sale and determines how the bonds are distributed among investors in connection with the offering. They define retail order period requirements (if any) and determine which orders receive priority. In both types of sales, underwriters are subject to primary offering practices as defined by MSRB rules. Read Issuer Considerations for Distributing Bonds: Establishing Priority of Orders.
While far less common, municipal securities can be sold in a private placement directly to one or a limited number of qualified investors, such as institutional investors, rather than through a public offering. Municipal securities issued in private placements are not deemed to trade in public markets because the investors typically are subject to restrictions on resale.
In planning a new issuance, issuers/obligors can use the Electronic Municipal Market Access (EMMA®) website as a resource to research interest rate levels and see where comparable bonds are trading in the marketplace. See EMMA for Issuers to learn more.
