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Morgan Stanley Joins JPM in Offering New Product

On Tuesday, JPMorgan placed its third ever callable commercial product for the city of Orlando, Florida. About $115 million of debt was issued by the Sunshine State Governmental Financing Commission for the city.

Public Financial Management Inc. was the financial advisor.

“There was tremendous demand,” said James Lansing, a managing director and head of debt capital markets, credit portfolio and investor marketing for public finance at JPMorgan.

So far, JPMorgan had been the only bank to offer this new product, but for the first time this week, Morgan Stanley served as the other remarketing agent, responsible for $50 million of the transaction.

“As the bank regulatory environment continues to develop and evolve, so does the menu of options that municipal issuers have to achieve floating rates,” said J.R. McDermott, a managing director in public finance at Morgan Stanley. “We welcomed the opportunity to become a CP dealer on the callable CP program for Sunshine State and were pleased with its acceptance in the market as we initially priced and placed the paper.”

JPMorgan came up with the new product as a solution for variable-rate municipal issuers facing impending Basel III regulatory problems. The proposed regulations would require banks to have a certain higher value of highly liquid assets to be available to turn into cash to meet liquidity commitments that could be drawn within 30 days. Maintaining higher liquidity would be expensive for banks, which may try to pass on costs to its issuers, according to an analyst at Moody’s Investors Service.

“What we did, starting over a year ago, is ask what we can do to change the product that will still work for all the players, including issuers, investors, and the rating agencies,” Lansing said. “And the ultimate result was this product.”

The new product allows banks to continue to support variable-rate products after the regulations are implemented. The paper has a variable length of maturity, but always at least 30 days. Several days before the paper would have 30 days left to its maturity, the issuer calls the paper.

Tuesday’s deal was also noteworthy because it offered taxable debt for the first time and had a standby purchase agreement instead of a letter of credit, which the last two deals were backed by.

The deal also went the furthest out on the curve, in terms of maturity. The first two callable CP deals had maturities from 60 to 90 days, but this one has a final maturity of 136 days.

“That’s a big vote of confidence from the investors, saying ‘we like the structure, we like every aspect of this and now that we’ve seen a few of them, we’re willing to buy a longer maturity,’” said Tim Self, managing director and head of credit origination.

They said they have a few more of these deals in the pipeline, but couldn’t give further details.