Determine financial feasibility
We help clients with their capital planning process. We help determine how much debt can be afforded and when. We help determine how it will be paid for whether by existing revenue streams, projected growth in revenues, increased user fees and/or increased taxes. Structuring future debt in the context of the existing debt profile is an important consideration as well. Refinancing opportunities are continuously monitored and presented to clients when appropriate. Refinancing savings can be an element of financial feasibility for additional borrowings.
Consider credit implications
Evaluating a client’s credit profile has additional implications for determining the amount and timing of future debt issuances. Generally, maintaining a certain bond rating requires maintaining key financial ratios at specific levels. We replicate the rating agency models for all types of credits to get the best possible profile of a potential rating outcome. These models allow our clients to test scenarios for various amounts of debt and for various scenarios of utilization of fund balances. Scenarios for growth and even natural disasters are modeled regularly. Additionally, we evaluate credit characteristics that might make a financing more or less attractive for a potentially lower cost private placement.
Confer on legal matters
We coordinate the evaluation of legal matters with bond counsel and the client’s internal legal counsel if any. For governmental entities, financing structures must be expressly authorized by law. Together with the legal team, we survey the available alternatives to accomplish each financing goal. Tax law is also considered for items such as private payments like corporate or federal research grants, naming rights or non-public revenue streams as well as private use such as ground floor retail, private operation of concessions and many other possibilities.
We draft and distribute a financing timeline and distribution list. As such we coordinate the various parties involved in the financing process to adhere to the client’s timeline goals.
Structure marketing plan
All of the information above is woven together with an analysis of current and projected market factors to determine the optimal marketing plan. Alternatives include a public competitive sale, a public negotiated sale, a private placement, pay-as-you-go financing, interim financing or some combination thereof. For regular issuers we often break up land acquisition and design costs into one financing and construction into a later financing. The difference between borrowing costs and investment costs, called negative arbitrage, is an important consideration. Negative arbitrage is weighed against the projected direction of interest rates in a breakeven analysis. Current and future interest rates weigh on the timing and amount of the components of a capital plan. Interim financing and variable rate financing is often considered as well.
Coordinate rating and bond insurance process
We help clients prepare for rating presentations by providing sample rating presentations and continually educating clients about developing criteria and considerations of the various agencies. We help choose the agencies with the strongest and most appropriate expertise for a given client sector or client credit characteristics. We coordinate the communication with the rating agencies including providing them with client information packages. We assist in reviewing draft credit reports at the end of the rating process. A similar process occurs for the potential use of bond insurance when appropriate.
Prepare offering documents
We either prepare or comment on the offering documents including the Preliminary Official Statement and if appropriate the Notice of Sale. These documents serve the dual purpose of disclosing the pertinent sale and credit information as well as serving as the marketing document to attract potential investors.
Coordinate marketing process
For a competitive sale we advertise the sale as per legal requirements as well as in industry services such as Parity, the Texas MAC and Bloomberg. Additionally, we personally call lists of potential bidders targeted to each client sector to garner interest and knowledge of each specific financing. From these calls and follow up calls we continuously update our sale parameters such as discount versus premium, ascending coupons, call features and more. For negotiated sales we often handle the RFP process for selecting underwriters. We confer about client goals and recommend the appropriate syndicate size and priority of order structure. Then we work with the underwriters through their due diligence process and help them build familiarity with the client so that they can better sell the credit. Finally, we represent the client in negotiations with the underwriter on components of the underwriting spread and on each initial interest rate. Live market research and frequent market negotiations equip us to negotiate to the basis point the appropriate levels for each client’s financing. We consider the timing of the order period and monitor order flow throughout the period. The order flow and market conditions are considered in negotiating the final interest rates for each maturity.
Monitor the closing process
Once a sale is completed, the final numbers are prepared and distributed and a bond purchase contract is executed by the client and the underwriter. Bond counsel prepares a transcript for review by the attorney general within a day or two. Also, the final Official Statement is drafted, commented upon, finalized and distributed. A closing memo is prepared and distributed detailing the mechanics of the flow of funds at closing. At closing funds are deposited in the client’s accounts.
A post-closing summary is prepared of the financing discussing the client’s goals and any unique aspects of the financing process.