PowerPoint
2015 Review of Competitive and Negotiated Bond Sales and Other Pertinent Bond-Related Issues for 2016 David Webb, First Vice President, George K. Baum & Company 8115 Preston Road, Suite 650 / Dallas, TX 75225
Today’s Agenda
• Discussion of Competitive and Negotiated Sales – Advantages and Disadvantages • 2015 Statistics – Private Placements, Competitive Sales, negotiated Sales – School market only • Putting Together a Negotiated Underwriting Team
Different Methods to Sell Your Bonds Private Placement – a buyer is solicited and agrees to buy the bonds. Banks are often the buyer in this transaction. Competitive Sale – Bonds are advertised for sale, any broker-dealer may bid on the bonds on the specified sale date, the bonds are awarded to the bidder offering the lowest net interest cost.
Negotiated Sale – an Underwriter or underwriting team is selected to purchase the bonds and re-sell to investors, terms of the sale may be negotiated during the process, sale date may be flexible.
Competitive Sales Issuers and their Financial Advisors may choose to sell bonds competitively if – * a traditional financing structure is utilized, * Issuer has a good reputation / name recognition in the municipal market * Issue has an investment grade credit rating *the market is relatively stable at the time of the sale
Competitive Sales Advantages Competitive environment Perception of lower interest rates Open, transparent process
Disadvantages Issuer has no control over Underwriter Selection or Bond Distribution Limited Timing and Structural Flexibility
Negotiated Sales Issuers and their Financial Advisors may agree to sell bonds via a negotiated process if they wish to * Select their Underwriters through a formal or informal selection process, * Allow and approve tailoring the bonds to meet market demands in advance of the sale * Allow the Underwriters time to market bonds to customers ahead of the sale, including the use of a retail order period for local customers in District or in state, * Maintain flexibility and control over the sale date due to “bumpy” market conditions
Negotiated Sales Advantages Effective for complex or non-traditional financings Flexible Timetable Pre-sale Market Assessment and retail order period Influence over Underwriters and bond distribution
Disadvantages It may appear to be less transparent Perception of Less Favorable Rates
Texas School District Bond Sale Data In 2015, here’s how private placements, competitive and negotiated sales stacked up from a statistical standpoint –
Type of Sale Competitive Sales Negotiated Sales Private Placements Total
No 120 387 45 552
$ $ $ $
Total 1,845,035,905 13,794,052,653 172,258,000 15,811,346,558
$ $ $ $
High 218,385,000 345,185,000 40,360,000 345,185,000
Low $ 1,295,000 $ 1,200,000 $ 216,000 $ 216,000
Average $ 15,375,299 $ 35,643,547 $ 3,827,956 $ 28,643,744
Texas School District Bond Sale Data Here is how Texas school district sales look on a month to month basis, in 2015… Month Competitive Negotiated Jan-15 8 19 Feb-15 10 41 Mar-15 10 46 Apr-15 15 39 May-15 14 47 Jun-15 17 33 Jul-15 18 57 Aug-15 4 18 Sep-15 2 8 Oct-15 7 38 Nov-15 5 18 Dec-15 10 23
PP 5 3 4 6 5 7 5 5 0 3 2 0
Graphic Presentation of Monthly Sales by Type 60
50
40
30
Competitive Negotiated PP
20
10
0
Bottom Line Takeaways • Whether to sell Competitively or via a Negotiated Sale is a decision YOU make as the Issuer, with input from your Financial Advisor, of course! • If you sell via a Negotiated Sale process, selection of Underwriters is YOUR choice as the Issuer. Again, you will likely solicit and value input from your Financial Advisor on this important decision. • Both methods have advantages and possible disadvantages – weigh them carefully before you decide how to proceed. • Always act in the best interests of the taxpaying public that you serve.
Wrap - Up • Negotiated Sales lead Competitive Sales in Texas ISD’s – 3.2+ to 1 in number of sales – 7.5 to 1 in dollar volume • Both methods have advantages and potential disadvantages. Deciding which is best for you is more “art” than “science”. • Larger sales and more complex sales tend to sell via a negotiated process. • Smaller sales tend to sell via a competitive sales process.
• Very small sales, with some exceptions, tend to be privately placed.
Putting Together a Negotiated Team • Selection of Underwriters for a negotiated team is YOUR choice. Of course, you want feedback on this important decision from you FA. • You may decide to issue an RFP / RFQ document. • You may select from a group of Underwriters who have called on you or made financial presentations to you. • Considerations – – Regulatory Compliance Record – look it up at www.finra.org – Experience in the ISD bond market – Existence of a Trading Desk operation in Texas – Capacity to take bonds into inventory – Advice and feedback from Financial Advisor – Priority Policy – Group Net v Net Designated
HB 1295 • HB 1295 has been a “hot topic” since the first of the year! • Pertains to contracts over $1 million OR any contract approved by Board of Trustees. • Consensus is that it is redundant for ISD’s, given the current level of transparency already in place (audit, open meetings postings, check registers, Board approval of contracts over $50,000, et cetera). • See additional information and resources on the diskette… • Underwriters in Texas have been complying with HB 1295 since 1/1/16 as an additional compliance issue.
About GKB • George K. Baum & Company, in business since 1928 and in Texas since the early 1970’s, is here to help you in any number of possible ways – – GKB provides financial advisory services to municipal clients across the country – GKB is a leading underwriter of K-12 bonds nationally and in Texas – GKB has an enviable / favorable regulatory compliance record – GKB has an underwriting, syndication and sales desk in Dallas, Texas to serve our Texas municipal clients
George K. Baum & Company George K. Baum & Company – - Experienced in Municipal Underwriting - Experienced in Municipal Financial Advisory Services - Experienced from an Issuer’s Perspective - Sales, Trading and Syndication Desk opened in Dallas – September 2015!
David Webb First Vice President (214) 365-8209 [email protected]
Public Finance Headquarters Houston Dallas • Austin Albequerque •
On The CD • This Presentation! (in pdf format) • Blank IRMA Letter • E-copy of “ A Brief History of Texas School Finance”, 2nd edition** • GKB Bond Basics** • GKB Statement of Qualifications • GKB Texas Fact Sheet • HB 1295 Presentation – McCall Parkhurst Horton • McCall Parkhurst Horton PowerPoint presentation • GKB Weekly Rate update • GKB Weekly Market Commentary ** - good for new trustees or new business office employees!
Today’s Agenda
• Discussion of Competitive and Negotiated Sales – Advantages and Disadvantages • 2015 Statistics – Private Placements, Competitive Sales, negotiated Sales – School market only • Putting Together a Negotiated Underwriting Team
Different Methods to Sell Your Bonds Private Placement – a buyer is solicited and agrees to buy the bonds. Banks are often the buyer in this transaction. Competitive Sale – Bonds are advertised for sale, any broker-dealer may bid on the bonds on the specified sale date, the bonds are awarded to the bidder offering the lowest net interest cost.
Negotiated Sale – an Underwriter or underwriting team is selected to purchase the bonds and re-sell to investors, terms of the sale may be negotiated during the process, sale date may be flexible.
Competitive Sales Issuers and their Financial Advisors may choose to sell bonds competitively if – * a traditional financing structure is utilized, * Issuer has a good reputation / name recognition in the municipal market * Issue has an investment grade credit rating *the market is relatively stable at the time of the sale
Competitive Sales Advantages Competitive environment Perception of lower interest rates Open, transparent process
Disadvantages Issuer has no control over Underwriter Selection or Bond Distribution Limited Timing and Structural Flexibility
Negotiated Sales Issuers and their Financial Advisors may agree to sell bonds via a negotiated process if they wish to * Select their Underwriters through a formal or informal selection process, * Allow and approve tailoring the bonds to meet market demands in advance of the sale * Allow the Underwriters time to market bonds to customers ahead of the sale, including the use of a retail order period for local customers in District or in state, * Maintain flexibility and control over the sale date due to “bumpy” market conditions
Negotiated Sales Advantages Effective for complex or non-traditional financings Flexible Timetable Pre-sale Market Assessment and retail order period Influence over Underwriters and bond distribution
Disadvantages It may appear to be less transparent Perception of Less Favorable Rates
Texas School District Bond Sale Data In 2015, here’s how private placements, competitive and negotiated sales stacked up from a statistical standpoint –
Type of Sale Competitive Sales Negotiated Sales Private Placements Total
No 120 387 45 552
$ $ $ $
Total 1,845,035,905 13,794,052,653 172,258,000 15,811,346,558
$ $ $ $
High 218,385,000 345,185,000 40,360,000 345,185,000
Low $ 1,295,000 $ 1,200,000 $ 216,000 $ 216,000
Average $ 15,375,299 $ 35,643,547 $ 3,827,956 $ 28,643,744
Texas School District Bond Sale Data Here is how Texas school district sales look on a month to month basis, in 2015… Month Competitive Negotiated Jan-15 8 19 Feb-15 10 41 Mar-15 10 46 Apr-15 15 39 May-15 14 47 Jun-15 17 33 Jul-15 18 57 Aug-15 4 18 Sep-15 2 8 Oct-15 7 38 Nov-15 5 18 Dec-15 10 23
PP 5 3 4 6 5 7 5 5 0 3 2 0
Graphic Presentation of Monthly Sales by Type 60
50
40
30
Competitive Negotiated PP
20
10
0
Bottom Line Takeaways • Whether to sell Competitively or via a Negotiated Sale is a decision YOU make as the Issuer, with input from your Financial Advisor, of course! • If you sell via a Negotiated Sale process, selection of Underwriters is YOUR choice as the Issuer. Again, you will likely solicit and value input from your Financial Advisor on this important decision. • Both methods have advantages and possible disadvantages – weigh them carefully before you decide how to proceed. • Always act in the best interests of the taxpaying public that you serve.
Wrap - Up • Negotiated Sales lead Competitive Sales in Texas ISD’s – 3.2+ to 1 in number of sales – 7.5 to 1 in dollar volume • Both methods have advantages and potential disadvantages. Deciding which is best for you is more “art” than “science”. • Larger sales and more complex sales tend to sell via a negotiated process. • Smaller sales tend to sell via a competitive sales process.
• Very small sales, with some exceptions, tend to be privately placed.
Putting Together a Negotiated Team • Selection of Underwriters for a negotiated team is YOUR choice. Of course, you want feedback on this important decision from you FA. • You may decide to issue an RFP / RFQ document. • You may select from a group of Underwriters who have called on you or made financial presentations to you. • Considerations – – Regulatory Compliance Record – look it up at www.finra.org – Experience in the ISD bond market – Existence of a Trading Desk operation in Texas – Capacity to take bonds into inventory – Advice and feedback from Financial Advisor – Priority Policy – Group Net v Net Designated
HB 1295 • HB 1295 has been a “hot topic” since the first of the year! • Pertains to contracts over $1 million OR any contract approved by Board of Trustees. • Consensus is that it is redundant for ISD’s, given the current level of transparency already in place (audit, open meetings postings, check registers, Board approval of contracts over $50,000, et cetera). • See additional information and resources on the diskette… • Underwriters in Texas have been complying with HB 1295 since 1/1/16 as an additional compliance issue.
About GKB • George K. Baum & Company, in business since 1928 and in Texas since the early 1970’s, is here to help you in any number of possible ways – – GKB provides financial advisory services to municipal clients across the country – GKB is a leading underwriter of K-12 bonds nationally and in Texas – GKB has an enviable / favorable regulatory compliance record – GKB has an underwriting, syndication and sales desk in Dallas, Texas to serve our Texas municipal clients
George K. Baum & Company George K. Baum & Company – - Experienced in Municipal Underwriting - Experienced in Municipal Financial Advisory Services - Experienced from an Issuer’s Perspective - Sales, Trading and Syndication Desk opened in Dallas – September 2015!
David Webb First Vice President (214) 365-8209 [email protected]
Public Finance Headquarters Houston Dallas • Austin Albequerque •
On The CD • This Presentation! (in pdf format) • Blank IRMA Letter • E-copy of “ A Brief History of Texas School Finance”, 2nd edition** • GKB Bond Basics** • GKB Statement of Qualifications • GKB Texas Fact Sheet • HB 1295 Presentation – McCall Parkhurst Horton • McCall Parkhurst Horton PowerPoint presentation • GKB Weekly Rate update • GKB Weekly Market Commentary ** - good for new trustees or new business office employees!
