Rob Rasmussen, formerly of Investment Management Advisory Group, has formed a new company called Municipal Government Investors Corp., or mGIC, to offer interest rate derivative products as well as standard guaranteed investment contract products to municipalities.
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Rasmussen, mGIC's president, said the company will act as a structuring agent and as a bidding agent. It will conduct competitive bids among broker-dealers, banks, and insurance companies.
Rasmussen started the Long Island, N.Y.-based firm in response to a trend he noticed among clients of gravitating increasingly towards derivative products, in part because of the low interest rate environment.
He said the firm has seen an increase in the investor acceptance rate for interest rate swaps and other forms of derivative products, because of advantages such as interest rate savings.
An issuer can get a lower interest rate when it does a bond deal and a swap concurrently, instead of a traditional bond deal. That is a result of the wide spread between swap rates and municipal bond rates, Rasmussen added.
Swaps can also generate up-front payments and debt service release, which can be used as a temporary liquidity source for budget-strapped issuers.
Derivative products also are in higher demand because they can be tailored to suit an issuer's specific needs, he said.
Previously, derivative products were used solely by large, high-profile issuers, but municipal issuers have become more sophisticated. To that end, they are getting more comfortable with swaps and derivative products, in addition to the more widespread use of GICs, Rasmussen said. Even midsize and smaller localities are now considering them.
GICs are an investment vehicle in which issuers reinvest bond proceeds.
Rasmussen left Investment Management Advisory Group in May and immediately started mGIC.
Over the next six months, the firm will continue to create derivative products to address a more diverse issuer base, including municipal issuers and private-activity bond issuers.
The startup also plans to hire up to two people over the next six months. It will be looking for professionals to work in a marketing and structuring capacity, Rasmussen said.
"In a firm like ours, we have to wear many hats," he pointed out.
