Best Practices Show
State and local government issuers strive for the best balance between the yield for each maturity and the takedown to achieve the lowest overall cost of financing.Note: This Best Practice (BP) is one of a group of seven documents relating to the sale of bonds. These seven documents should be read and considered in conjunction with each other because of the interaction of the processes to which they apply. The documents are:
Cost of borrowing, one of the most important outcomes of the sale of bonds, is established through the pricing process. Unlike a competitive sale, bond pricing in a negotiated sale requires a much greater degree of issuer involvement. An issuer negotiates both the yield on the bonds and the underwriters’ compensation (also called underwriter discount or gross spread), which includes the takedown (or sales commission), management fee, underwriting risk, and expenses. Success by an issuer in negotiating the price of its bonds depends on the issuer’s ability and willingness to devote sufficient time to understanding the market and the historical performance of its bonds. GFOA recommends that state and local government issuers strive for a balance between the yield for each maturity and the takedown to achieve the lowest overall cost of borrowing. The following actions by issuers are recommended to improve the pricing process:
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Under which of the following terms does the underwriter act in a dealer capacity quizlet?Under which of the following terms does the underwriter act in a dealer capacity? The firm commitment is the most commonly used type of underwriting contract. Under its terms the underwriter commits to buy the securities from the issuer, and as such is acting in a dealer capacity.
Which of the following would indicate a control relationship between a municipal dealer and an issuer?Under MSRB rules, which of the following would indicate a control relationship between a municipal dealer and an issuer? The dealer is engaged as an underwriter for the issuer.
When describing a new offering of municipal bonds which statement is true regarding presale orders?The $25,000 is the minimum equity in a pattern day trading account. When describing a new offering of municipal bonds, which statement is true regarding presale orders? The takedown on presale orders is credited to the account of the syndicate manager.
Which of the following exemption provisions of the Act of 1933 may not be used for an initial offering of securities?Which of the following exemption provisions of the Act of 1933 may not be used for an initial offering of securities? Rule 144 does not pertain to primary offerings; it affects secondary market transactions in restricted or control securities.
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