CHICAGO – Underwriter insights about the impact of tax reform on future state and national issuance plays prominently in Wisconsin’s request for qualifications process to establish broker-dealer pools on negotiated sales through 2020.

Investment banks interested in working on the state’s various credits should submit their qualifications by an initial deadline of Feb. 16. Investment banks can submit their qualifications at any time but after the Feb. 16 deadline, the state said it cannot guarantee a timely review of responses.

The state will establish from the submissions a senior manager and co-manager pool and draw from them to form the syndicates on negotiated transactions under its general obligation, transportation revenue credit, environmental improvement fund, general fund annual appropriation, and master lease credits as well as potential new borrowing programs. The state uses a mix of negotiated and competitive sales.

Madison, Wisconsin, featuring the state capitol
The Wisconsin state capital of Madison. The stdate has issued a request for qualifications from bond underwriters. Adobe Stock

The state is a top Midwestern borrower issuing nearly $3.5 billion in 12 sales last year and nearly $2.2 billion in 10 issues in 2016, according to data from Thomson Reuters.

Capital finance officer David Erdman’s office is the lead contact on the RFQ on behalf of the Wisconsin Building Commission which authorizes state bond issuance. The pools will run through 2020 although the capital finance office can terminate or extend the pools at any time. The last pools were selected from a 2015 competitive selection process and expired at the end of 2017, Erdman said.

“The Capital Finance Office may periodically update the pools of underwriters, including the addition of firms that may submit their qualifications after the initial deadline,” the RFQ says. The state doesn't have a target for the number in each pool and selections will be based on the review process. The state seeks to give at least 6% of bond work to minority-owned firms and seeks the inclusion of disabled and/or veteran-owned firms.

Erdman said the range of questions on the tax reform changes is driven by the state's need to look at its post-reform options and alternatives.

Responses will be reviewed by a committee of state officials ranked with 20% of their score representing their financial capacity and distribution, 40% for their technical abilities & qualifications, 25% for their commitment and experience on state deals, and 15% for their relevant senior manager/co-manager experience.

Firms are asked to summarize their work on state, state authority, and local government issuance from 2015 to date and secondary market support.

Firms seeking a spot in the senior manager pool are asked for extensive input on the impact of the tax reform package signed into law by President Trump Dec. 22. The RFQ asks firms to “provide any innovative strategies that can help the state extract value of call options on outstanding bonds” given the elimination of advance refundings in the legislation.

“Taking into account an innovative strategy from the above question that the state is most likely to utilize, please identify and discuss new or revised criteria the state should consider when reviewing refunded bond candidates,” it asks. Erdman has adhered to policies that include the requirement that refundings offer present value savings of at least 3% under a typical 10-year call.

The state also asks underwriters to generally describe bond terms, redemption features, and innovative debt management tools “that can both create and sustain realistic call option features” for the state on new money issuance and asks what the costs and risk those features would pose to the state.

Wisconsin is also looking for a more national view, asking senior manager candidates if they foresee the fundamentals of the municipal bond market changing and whether the municipal bond market might transform to fundamentals of the corporate bond market.

With the latter change in mind, the state asks how underwriters have expanded their coverage of investors to identify and expand clients that are interested in taxable bonds and whether they see a demand for taxable bonds from international clients “and if so, is the state’s investor outreach and disclosure suitable to address this demand?”

The RFQ seeks input on the potential impact on relationships among issuers, advisors, underwriting in light of potential changes and the short-and long-term impact on rates and spreads lower supply due to the lack of advance refundings.

The RFQ also asks for structuring and marketing ideas and a preferred option for complying with the June 2017 issue price rules.

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