LOS ANGELES — Issuing municipal bonds is a complex process fraught with potential conflicts, Christopher Mier, managing director of the analytical services division for Loop Capital Markets, told bond issuers here Wednesday.
Mier also provided guidelines for lessening some of the complexities during Wednesday's California Debt and Investment Advisory Commission's event preceding The Bond Buyer California Public Finance Conference.
Most city or issuer finance officials are hired because of expertise in crafting a budget, or handling accounts receivable, not because of expertise or experience issuing municipal bonds, Mier said.
Even so, it's important that city financial staff don't just leave everything "to the experts," Mier said.
"It's very important that you establish a process determining what kind of process and what kind of outcomes you want," he said.
"Most issuers are out in the market maybe once a year, maybe more often than that," said the day's first speaker, Jay Goldstone, chair of the Municipal Securities Rulemaking Board.
It's important for such issuers to be in control of the process and not to just leave it in the hands of the bond market pros, he said. The issuer will own the debt for 20 or 30 years or more, he said. "Do you know what you've signed up for?"
Among the primary decisions an issuer has to make, Mier said, is whether to use a competitive auction sale for the bonds, or select underwriters in advance and sell through negotiation.
For those that choose negotiated sales, a well-crafted request for proposal process can be a valuable tool for an issuer, Mier said.
"It's a great mechanism for getting a lot of free information," he said. "You might get a treasure trove of interesting ideas."
His tutorial touched on the roles of various members of the deal team, including financial advisors.
Mier said underwriters are caught in a balancing act between trying to get the right price for the issuer and also pricing the bonds at yields that work for the buyers. If the underwriter doesn't accomplish this goal, the bonds either don't sell, if they are priced to high, or they are oversubscribed indicating they were likely priced at a discount.
But Mier says pricing bonds is an art - and there is almost no way to perfectly price bonds.
Issuing municipal bonds is a complex process "even for a city like ours that is in the market regularly," Natalie Brill, Los Angeles' debt manager, said during the question-and-answer session after Mier spoke. "A financial advisor provides necessary advice."
Mier responded that not hiring an FA is a good case of "penny wise and pound foolish."
