New York's plans to increase participation by minority- and women-owned underwriting firms on state bond deals took a big step forward yesterday with the approval of a standardized request for proposals template by a state task force.
The new RFP process calls for a target of having a so-called minority and women-owned business enterprise participate on all state-backed bond deals, allows the issuer to require that an underwriter partner with an MWBE, allows firms to list experience managing similar deals outside of New York on the RFP application, and allows authorities to change an underwriter's position within a syndicate.
Allowing authorities to require partnerships among underwriters will boost MWBE participation, said task force chairman Paul Williams Jr.
"We were trying to create a situation where each authority would have maximum flexibility in regard to developing the financing team," he said. "We were also trying to make sure that, on an authority by authority basis, we could have the flexibility to maximize opportunities to work with MWBE firms."
Another crucial change was allowing firms to move up or down on underwriting syndicates, Williams said.
"To really hold folks accountable, you have to be able to reward people who do well and let people know who don't do so well that there are consequences for failing to cover appropriately, failing to own up to your underwriting commitments and things of that nature," he said.
Williams is also the executive director of the Dormitory Authority of the State of New York, which has issued $6.24 billion of bonds this year, according to Thomson Reuters.
The first authority to use the new procedure will be the New York State Environmental Facilities Corp., which plans to issue an RFP on Monday.
"We are telling the banking community that all of the authorities are going to have this standardized approach to seeking services," said EFC acting president Matthew Millea. "It should streamline the response times for all the bankers. It should assure the banking community that there's this effort to make sure that there's equal access."
EFC expects to sell between $700 million to $900 million of bonds in 2009 on its clean water and drinking water revolving funds and as PIT bonds. That amount could change depending on a potential federal stimulus package, Millea said.
One major change was the elimination of a practice that Williams called "anti-competitive" - some RFPs required firms to have prior senior managing experience on deals within the state or with the authority in order to qualify to senior manage a deal, essentially blocking firms that may have done sizeable deals outside of the state from doing similar deals in New York.
"It's a significant step in the right direction and a sign of progress," said Jim Reynolds Jr., chairman and chief executive officer of Loop Capital Markets LLC. "This RFP will allow more underwriters the opportunity to respond, eliminating the totally irrelevant road blocks that kept smaller firms other than major Wall Street firms from having an opportunity to underwrite or to be a senior manager on New York deals."
The establishment of a common and streamlined RFP process was one of the recommendations of the Minority and Women-Owned Business Enterprise Task Force that was created by Gov. David Paterson in June to boost participation of MWBE firms on state bond deals.
Since 2004, MWBE firms have managed or co-managed only 4% of $22 billion of state-backed bonds deals, according to the task force. The standardized RFP template was one of the recommendations released in October by the task force.
The recommendations take effect subject to approval by each of the five issuers of personal income tax bonds, which includes DASNY, EFC, the New York State Housing Finance Agency, the Empire State Development Corp., and New York State Thruway Authority.
DASNY and HFA already approved the recommendations. EFC is expected to approve it tomorrow and ESDC will consider them next week. The Thruway Authority will consider the recommendations at its January meeting.
Those issuers have sold $11.94 billion of bonds this year, according to Thomson Reuters, and all were represented on the task force.
DASNY plans to issue a new RFP later this month and HFA plans to issue one next month. Both the Thruway Authority and ESDC expect to issue RFPs next year.
Under the new RFP, syndicates will now serve two year terms with the option to extend the term by six months. The recommendations called for a target of 20% participation of MWBE underwriting firms on state-backed debt deals, though the RFP template only calls for a good faith effort to have MWBE participation on all state-backed bond deals.