The electronic preliminary official statement, introduced to the municipal bond market about five years ago to cut down on printing costs, was initially viewed as a solution to handling the piles of bulky FedEx packages investors used to receive in abundance daily.
Today, that electronic format is creating some problems of its own.
Josh Gonze, an assistant portfolio manager at Thornburg Investment Management Inc. in Santa Fe, N.M., said he's getting bombarded with hundreds of e-mail messages a day, many of which are preliminary official statements. But because their subject lines are often nondescript, he has trouble distinguishing them from all the pricing scales, term sheets, rating reports, issuer financials, and conference-call announcements he regularly receives in his inbox.
"If somebody calls and says, `Well, did you get my POS?' the answer is inevitably, `I have no idea.' There's no way for me to tell. I have to open 300 e-mails to find out," Gonze said.
The volume of e-mail has become so overwhelming, he said he stopped trying to view each POS he receives. "It's impossible," according to Gonze.
To be sure, the electronic dissemination of offering documents has brought some benefits to the municipal bond market.
When Thomson Prospectus first began marketing the idea to investment bankers in the late 1990s, Kevin Colleran, now a vice president of sales at i-Deal, which bought the operation from Thomson Corp. in 2001, said they weren't all receptive. Some of the bankers had been using hard copies for decades and were averse to change, Colleran said. But he said that when they began approaching issuers, they were all ears, because electronic distribution promised big cost savings.
Hard copies were being sent via FedEx delivery, at a cost of about $15 a package, said Colleran, who estimates that mailing lists were often 500 investors long, and even totaled as many as 2,000. Printing and mailing costs for a deal could run anywhere between $10,000 and $60,000, he said. Thomson Prospectus, by comparison, charged just $1,500 to format and distribute it electronically.
"A lot of times, the hard copies would get lost in the mail room, or would get there after the sale date," Colleran said.
Early on, in meeting with investment management firms, Colleran found them very receptive to the idea. "I can't tell you how many people would point at a pile of unopened FedEx packages and say, `If you can help us with these, you'd be doing us a great service,' " he said.
"Sometimes we don't have all the time that we would like to review a document. Any time that we can cut down in transit through snail-mail is a benefit to us," said Ken Kauffman, a senior research analyst at U.S. Bancorp Asset Management Inc. in Minneapolis.
Just a few years after Thomson Prospectus electronically formatted and distributed a deal for the California Health Facilities Financing Authority in May 1998 -- the first-ever muni POS the firm sent digitally -- electronic documents have become standard practice.
Thomson Prospectus went from electronically formatting and distributing nine preliminary offering statements in 1998 to 70 in 1999. In 2000, the operation handled 600 deals. In 2001, that number grew to 1,500. Since i-Deal's acquisition of the business late that year, the number of deals it has done has grown at a pace of about 500 per year.
Competition has also grown from other firms offering services similar to those provided by i-Deal. Thomson Corp., which is part owner of i-Deal, also owns The Bond Buyer. One of i-Deal's largest competitors, ImageMaster-MuniOS, now does between 800 and 1,000 deals per year. The Bond Buyer's Municipal Marketplace lists an additional eight financial printers that offer electronic document distribution.
Many issuers today no longer make the bound hard copies of a POS available at all.
When Howard County, Md., sold $141.6 million in bonds on Thursday, it was the third year in a row that the county used an electronic POS.
"The first time we actually printed copies as well, and got no requests," said Sharon Greisz, the county's finance director. Since then, the county has only made them available electronically.
"One of the reasons we first did it hard copy was because the document was so huge, it'd take forever to download," Greisz said. "Now, PCs have caught up, so it's not really an issue anymore."
Greisz estimates that the county saved over $5,000 in printing and mailings costs by having i-Deal electronically format and distribute the POS for its most recent sale.
The availability of an electronic POS can also assist someone looking to trade bonds in the secondary market by giving them the ability to easily send and receive documents via e-mail, U.S. Bancorp's Kauffman said.
"The information can be obtained and acted on by decision makers in a more timely fashion," he said. Electronic official statements also take up far less storage space than the hard copies required, he added.
Kauffman said he will receive the occasional corrupted file or poorly scanned document. Even when they come through correctly, some are harder to navigate than others, he noted. "Header information is often ambiguous, which can make it difficult to prioritize any POS that might be coming into the office at any given time."
Thornburg's Gonze estimates that about 75% of the electronic POS he receives are sent by specialized electronic distributors, with the other 25% coming from underwriters themselves. One such e-mail from i-Deal reviewed by The Bond Buyer specified the name of the issuer, the fact that it is an electronic POS, and also identified which series of bonds it covered.
MuniOS does not specify in the subject line that the e-mail gives access to a POS, and instead just lists the issuer's full name.
Daniel Rodriguez, a senior vice president at MuniOS, said he hadn't been aware that the delivery of electronic statements were creating problems for those trying to sort through their inboxes.
"We never get any feedback from the end user, which is the investor," Rodriguez said. "We could probably use a different format or method of putting the name on the subject line."
Other e-mails may have a subject line stating nothing more than "Electronic POS," or "Industrial Development Authority," Gonze said.
For bonds being sold by conduit issuers, the names of the obligors are commonly left out of the subject line, Gonze added.
"That's not telling me anything," he said. "I need to know that it's for the Pine Tree apartment building."
