According to Executive Order No. 26, bonds issued through the State and its authorities should generally be sold on a competitive basis. However, a negotiated sale or a private placement can be conducted if it is determined that such a structure would better serve the needs of a particular financing. Private placements are typically used for smaller projects.

A competitive sale is generally used for transactions of up to $50 million with solid credit and straightforward structures. To complete a competitive issue, a financial advisor is selected to work with members of the financing team to establish contractual terms, obtain credit ratings and enhancement (if available and cost effective) and secure a repayment structure for the issue. A notice of sale is then placed in the appropriate publications. Sealed bids are submitted and analyzed; the firm or group of firms with the best bid that meets the established criteria is awarded the bonds.

Negotiated sales are permitted when the issue involves: the sale of complex or poor credits; complex financing structures (such as those that include the simultaneous sale more than one series with each series structured differently); a large issue size; variable rate bonds; programs or financial techniques that are new to investors; or volatile market conditions. To complete a negotiated issue, a senior managing underwriter is selected to work with other members of the financing team to establish contractual terms, obtain credit ratings and enhancement (if available and cost effective) and secure a repayment structure for the issue. The senior managing underwriter, and any other underwriters who might have been appointed, test interest rate levels and bond structure through a process called "pricing". The bonds are awarded to the senior managing underwriter or to a group of firms headed by the senior managing underwriter following a negotiation of interest rates and fees.

A private placement is generally used for issues that meet the criteria for a negotiated sale, but are determined by a financial analysis to be less expensive on a present value basis if completed as a private placement. They are also used if various circumstances (i.e., credit considerations) would limit the effectiveness or usefulness of a public sale. To complete a private placement, the working group structures the financing and develops the documents including, for some transactions, a private placement memorandum to be distributed to interested bond funds, banks and other knowledgeable investors. Either a private placement agent is appointed to work on the transaction or, if requested by the borrower, the Authority will consider directly placing its bonds. Bids are solicited from a pool of potential investors and are evaluated on the basis of the lowest interest cost and covenant requirements. The bonds are sold to the investor(s) whose bid is most satisfactory.

An outline of the steps involved in the financing process for each of the financing vehicles can be provided at your request. For further details or to schedule an appointment to discuss your financing needs, contact: Bill McLaughlin, Director of Project Management at (609)292-8585.