5.3.1 Advantages of a Negotiated Public Offering
The advantages to a public agency of a negotiated public offering may include structuring assistance, pre sale marketing, and additional flexibility in the transaction structure and timeline. Involving an underwriter early in a transaction can help the public agency craft its financings because the underwriter may be familiar with innovative techniques employed by similar issuers in recent financings. In addition, because the underwriter in a negotiated sale knows it will be able to purchase the public agency’s bonds, it may conduct effective pre sale marketing with potential investors to provide information on market demand and otherwise generate interest in, and feedback on, the offering before the offering date. Pre sale marketing is of particular value if the transaction is complex or the public agency’s credit is weak or difficult to understand.
The underwriter can also obtain commitments from investors to purchase the bonds before determining the yields on the bonds, which may reduce an underwriter’s inventory risk and result in a lower in the pricing for the public agency. Additionally, a negotiated sale makes last minute adjustments to debt structure or sale timing easier, giving the public agency additional flexibility to respond to investor feedback and short term market fluctuations. Flexibility is of particular value in volatile markets, for unusual financings, and for financings involving independent variables (e.g., the need to structure a current refunding to optimize total savings or a general obligation [GO] bond to respond to tax rate targets). Finally, a negotiated sales approach may enable an issuer to achieve other goals, such as hiring firms that employ disabled veterans.