5.2.3 Documentation for a Competitive Sale
Issuers of bonds in a competitive sale provide a notice of intention to sell the bonds. The notice of intention states when the sale is scheduled and how potential bidders may obtain a copy of the NOS. In addition, the NOS is generally distributed to likely bidders. The NOS describes the requirements of the financing, including the following:
- The method of delivering bids and the date, time, and place of the bid opening or, if an electronic bidding platform is used, the requirements for participation.
- The rights of the public agency to amend the NOS, delay the sale, or reject bids
- The terms of the bonds and the security for them
- Maximum and minimum offering prices
- Any requirements with respect to bond terms (e.g., ascending interest rates) that must be reflected in bids
- The basis for determining the winning bid
- The ability of the public agency to adjust principal amounts following the receipt of bids
- The good faith deposit or surety required to secure the underwriters’ obligation to take delivery of and pay for the bonds
- An enumeration of the documents, certificates, and opinions that must be delivered concurrently with the delivery of the bonds (which are of more limited scope than for a negotiated public offering)
Bidders are generally allowed to specify that principal amounts maturing on sequential dates be consolidated into term bonds and the public agency is often authorized to increase or decrease the amount of principal maturities within specified limits (e.g., to achieve level debt service or the desired amount of proceeds). The NOS, together with the winning bid and the public agency’s acceptance of the bid, form the agreement for the purchase and sale of the bonds between the public agency and the underwriter submitting the winning bid.
As it would in a bond pricing for a negotiated sale, a public agency selling bonds through a competitive sale may turn to its municipal advisors to develop an understanding of prevailing market conditions, evaluate key economic and financial indicators, and assess how these indicators may affect the proposed pricing in the competitive offering. Additionally, because bonds sold in a competitive sale are awarded to the lowest bid, issuers and their advisors must be prepared to verify the accuracy of the bid’s proposed interest cost relative to the terms of the bid document and structure of the debt issuance.