Our Approach to Bond Sales

This issuer had been using another financial advisor for many years and regularly received three to four offers on its bonds at sale time. We attained seven offers on this issuer’s bonds from underwriters.

This issuer had been working with another financial advisor. On our own initiative, we presented an opportunity for it to refund several of its serial bonds for overall budgetary savings. We were subsequently engaged by this issuer and completed the sale.

Final budgetary savings for this client doubled as a result of achieving a rating increase for this issuer and the structuring and timing of this refunding bond sale.

Documents were prepared, sale conducted and closed within 3-1/2 weeks of being notified by this client of its need for cash-flow funding.

Market interest rates spiked during the 4 week period of required Board Approvals and bond sale document preparation of this refunding bond, whereby budgetary savings tanked from $5.0 million to $2.41 million. This client took Liberty’s advise and delayed the sale until the markets returned to a better pricing level, achieving the originally projected $5.0 million savings.

The 10-Year “AA” municipal market interest rate spiked .71% several weeks before this issuer was to distribute sale documents for its serial bond. The sale could not be postponed, since the purpose of the borrowing was to pay-off a Bond Anticipation Note, which was maturing at the end of the month.

Due to the sudden increase in interest rates, our client wanted our advice. Should they reissue the one-year Note, with the plan of re-entering the bond market when interest rates were more favorable or should they proceed with its original plan of “locking in” interest rates for a long term bond. We advised to proceed with the bond sale. This client took Liberty’s advice. Rates returned to a more normalized range and our client issuer was pleased.

This issuer was confronting strict budget constraints for its upcoming fiscal year as a large principal pay-down on several of its BANS were comming due. Conducting a lengthy analysis permitted under local finance law, we helped to decrease the required payment, thus reducing the required tax rate increase to fund the principal pay-down to .93% from 4.16% for this client.

Due to a relatively steep yield curve at the time of issuance, the phasing of bond projects into two financings and a budget objective of a tax-neutral financing, we conducted an analysis for this client evaluating the benefits of 20-year bonds versus 15-year bonds. Based on our analysis, we saw an opportunity for an entire tax-neutral capital spending program, consisting of bonding and “pay-as-you-go” financing. Public meetings for this bond resolution were thorough and well attended. Based on the program and the public presentation, we were credited with strong voter approval for the bond resolution.

Through the structuring of a grant based capital program some years ago, we estimate this issuer is paying $0.47 per capital dollar “pennies-on-the-dollar” to fund its projects.

We prepared a very detailed “how to” plan which helped this infrequent issuer in attaining a “AAA” bond rating from Standard & Poor’s, resulting in a positive reception to the bond market. We were retained in mid-July and closed on its bond issue in mid-September, a time period of less than two months, as the issuer had just awarded a road and drainage contract and wanted to commence and complete Phase I work in the fall.

Subsequent to receiving a credit rating increase on its bonds, this issuer experienced two years of operating deficits, drawing down on its fund balance by 18.6%. Working closely with this client, we evaluated the reasons for the draw-down and the client’s capability for rebuilding fund reserves before the rating interview. The client’s credit rating was reaffirmed.

Sometimes during the credit rating interview a reverse strategy of working through “the numbers” first, and at the end of the interview, request a ratings increase, works out best. This was our approach in Fall 2008. Knowing that the municipal bond market had “seized-up” two months earlier and the rating agencies were in a more than usual cautious mode, we were thoughtful on how to request such an increase. We let the strong case speak for itself, making a “low keyed” suggestion at the end of the interview. Our client received the rating increase from an A1 to Aa3, saving thousands of dollars in interest costs.

After years of working to improve its financial picture, including the efforts of performing multi-year financial operating and debt planning, we agreed with this issuer that it deserved a credit rating increase from its “Baa1” Moody’s rating. Moody’s determined that a rating increase was not called for. Judging the Moody’s rating to be unjustified, we suggested seeking another rating opinion from Standard & Poor’s. Standard & Poor’s ultimately awarded the issuer an “A” rating, a double notch increase. The issuer’s bond sold the same day with an interest rate competitive with a comparable issuer’s bond, rated “A2” by Moody’s.

In conjunction with our ongoing monitoring of credit markets and issuers, we alerted this issuer of its risk of being downgraded to “junk” status, although they were not a client at the time. They engaged us and we quickly completed a formal credit review and ratings action plan. Two months later, as predicted, this issuer was placed on “watch list” for a possible credit rating downgrade. Having a plan in place helped prevent this issuer from being downgraded and allowed it to successfully sell a much necessary $22 million bond issue at a better interest rate.