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municipal underwritings

Terms in this set (87)

Which of the following statements are TRUE regarding the municipal financial advisor in competitive bid underwritings?

I The financial advisor helps the issuer structure a new bond offering

II The issuer pays the financial advisor

III The financial advisor is prohibited from bidding on the issue

IV The financial advisor is usually a municipal broker-dealer
I, II, III, IV

Financial advisors to municipalities are municipal broker-dealers familiar with the municipal marketplace. The financial advisor helps a municipality structure a competitive bid offering, receiving a fee from the municipality for this service. The firm that acts as the advisor attempts to get the lowest interest cost for the issuer. If the same firm were to be the underwriter, there is an inherent conflict of interest. As the underwriter, the firm wants to get the highest interest rate from the issuer, which makes the issuer easier to sell. The firm that acts as the financial adviser cannot be the underwriter in the deal - and this is true for both competitive bid and negotiated offerings.
Define: used primarily for initial offerings of most municipal general obligation bonds and all U.S. Government debt securities, a type of underwriting in which investment banking firms submit bids in accordance with specifically advertised criteria to the issuer, who then chooses those bids that will result in the lowest interest cost.
competitive bid underwriting
Define: used for virtually all new issues of corporate securities and municipal revenue bonds, a type of underwriting in which the issuer and the underwriting negotiate all of the terms of the letter of intent and subsequent underwriting.
negotiated underwriting
The bond counsel will review which of the following concerning a new municipal issue?
I Feasibility

II Constitutionality

III Statutory Requirements

IV Legislative or Voter Approval Requirements
II, III, IV

The bond counsel reviews the legal and tax status of a new municipal issue; he does not examine the economic viability of the project. Thus, the bond counsel does not examine the feasibility study, but would examine the constitutionality of the issue (is it permitted in that State?); any statutory requirements that must be met; and any voter or legislative approval requirements that must be met before the issue can legally be sold.
Which of the following statements are TRUE regarding new municipal offerings?

I Political subdivision municipal bond issues are usually offered through competitive bids

II Political subdivision municipal bond issues are usually offered through negotiated underwritings

III Enterprise activity municipal bond issues are usually offered through competitive bids

IV Enterprise activity municipal bond issues are usually offered through negotiated underwritings
I and IV

Most general obligation issues are sold through competitive bid while revenue bond issues are typically sold through negotiated offerings. Political subdivision issues are general obligation bonds of cities, counties, and townships. Enterprise activity issues are revenue bond issues where revenues from an enterprise pay for the debt service on the issue.
Which of the following statements are TRUE regarding new municipal offerings?

I General obligation bonds are usually offered through competitive bid

II General obligation bonds are usually offered through a negotiated offering

III Revenue bonds are usually offered through competitive bid

IV Revenue bonds are usually offered through a negotiated offering
I and IV

Most general obligation issues are sold through competitive bid while revenue bond issues are typically sold through negotiated offerings.
GO bonds are sold through what kind of bid?
competitive

used primarily for initial offerings of most municipal general obligation bonds and all U.S. Government debt securities, a type of underwriting in which investment banking firms submit bids in accordance with specifically advertised criteria to the issuer, who then chooses those bids that will result in the lowest interest cost.
Revenue bonds are sold through what kind of bid?
negotiated

used for virtually all new issues of corporate securities and municipal revenue bonds, a type of underwriting in which the issuer and the underwriting negotiate all of the terms of the letter of intent and subsequent underwriting.
The Official Notice of Sale is:
I the disclosure document used in connection with new municipal bond offerings

II the advertisement soliciting bids on a new municipal issue

III published in the Daily Bond Buyer

IV provided to all purchasers of a new municipal issue
II and III

Municipalities solicit bids for new issues from interested persons by placing an Official Notice of Sale in the Daily Bond Buyer. Do not confuse this with the Official Statement, which is the disclosure document given to all purchasers of new municipal issues.
Define: an advertisement published by a municipality in The Bond Buyer and local newspapers, that solicits competitive bids from investment banks and commercial banks that may want to underwrite a proposed new issue. The advertisement details the terms of the proposed bond issue, which the potential underwriter must consider when formulating its bid. These terms include the type of bonds that will be issued, the total dollar amount of the issue, the type of security backing the bond, the reputation of the bond counsel for the issue, the amount of the good faith deposit, and the last day to submit bids
official notice of sale
Which of the following information would be found in the Official Notice of Sale?
I Bond Type

II Bond Maturities

III Bond Interest Rates

IV Bond Attorney Name
I, II, IV

The Official Notice of Sale gives the basic information needed to bid on a new bond offering. Included is the type of bond, dollar amount of each maturity, the names of the bond counsel and authorized person to conduct the bond sale at the township, among numerous other items such as the dated date of the issue (the date from which interest will start accruing) and the award date - the date that the winning bid will be announced. What is not known is the interest rate on the bonds - this is determined by the winning bidder. The lowest interest rate bid wins - and this interest rate is printed on the bonds when they are delivered to the winning bidder.
Which of the following are determining factors when making a competitive bid for municipal issues?

I Maturities of the bonds

II Yields in the market

III Type of bonds

IV Amount of good faith check
I, II, III

When making a bid for an issue, municipal underwriters would consider the maturities of the bonds; current yields in the market; and the type of bonds being offered. The amount of the good faith check has no bearing on the bid. (Remember that in a competitive bid underwriting, the underwriter bids in terms of interest rate, with the lowest interest rates winning the bid. This is the lowest net interest cost to the issuer.)
Define: specified in the Official Notice of Sale for a new municipal bond issue, the amount of the cashier's or certified check which each underwriter must submit with its bid to the municipality. The checks belonging to the unsuccessful bidders are returned on the day the winning underwriter (lowest interest rate bid) is announced. The municipality keeps the check of the winning underwriter. When the bonds are printed with the winning interest rates and delivered, the balance due for the total amount of the issue is paid to the issuer by the underwriter.
good faith check
A municipal syndicate is preparing to bid on a competitive General Obligation issue. To determine the bid, the syndicate will first determine the:

A takedown

B scale

C coupon rate

D discount or premium
B scale

The first step in determining a competitive bid is to write the scale - the interest rates at which the syndicate believes it can successfully reoffer the bonds. The spread is then factored into the interest rates to come up with the interest rates to be bid.
Define: the listing of the prices or yields at which a new issue municipal bond is sold to the public. The listing gets its name because it is organized by maturity (since most municipal issues are serial bonds), and the yields increase as the maturities lengthen - so it "scales up" with maturity.
scale

also called the reoffering scale, The scale appears in the Official Statement (disclosure document) of the municipal issue.
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