- notice of sale-placed
- underwriters use New Issue Worksheet
- underwriter submits New Issue Worksheet with Good Faith Deposit, returned to losing bidders
- firm commitment underwriting, underwriter buys issue from issuer and sells to investors
- financial advisers with business relationships with municipalities cannot bid on competitive issues without issuer's permission
- potential conflict of interest, Municipal Securities Rulemaking Board (MSRB) stop advisers from working as underwriters without permission
- conflict of interest, adviser working for municipality wants lowest rate for bonds, underwriters want higher rate for bonds to make bonds attractive to investors
Scale in a municipal bond
- yield scale, new bonds are priced NOT in dollar amount
- yield scale, yield to maturity for serial bonds as they mature
- serial bonds have some principal maturity/year
- offering scale variables a)interest rate of each maturity date b)price bond is offered
- normal yield: low interest in beginning, higher interest later, most common
- inverted yield, high interest in beginning, lower interest later, least common
- flat yield, same yield in beginning as later, rare
Revenue bonds
- munis issue to fund a project/facility
- revenues will repay bond issue
- revenues will pay for maintenance
Which of the following describes a normal yield scale?
- early maturing bonds have lower yields
- yields increase later
inverted
- high yields at beginning
- lower yields later
Negotiated underwriting
- issuer does not need competitive bid
- may get lower price from negotiation than bid
- municipality has a relationship with an investment banker-worked with in past
- underwriter negotiates best price with issuer-thinks about what the expected market price for bond will be
- usually firm basis
- best efforts basis, can be
- best efforts, usually all or none underwriting
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