i.4.1.1 Pre-Issuance Phase

During this pre issuance phase the public agency must make basic business decisions regarding the project—its scope, cost, and the approach to financing. Issuers should carefully consider their own policies and long range objectives at this early stage so that during the actual process of preparing, selling, and closing the debt transaction, the goals of the agency are given weight. Consultants that may support the agency’s pre issuance work include the following:

MUNICIPAL ADVISORS – The public agency may engage a professional to provide financial and program advice on the debt type, purpose, and structure. Pursuant to regulations emerging from the Dodd-Frank Act, “municipal advisors” are fiduciaries to the public agency and must put the issuer’s interests first. Pursuant to the rules adopted by the SEC, municipal advisors are fiduciaries and they have a duty of care and a duty of loyalty to their client (See Section 6.2.1, Municipal Advisors and Underwriters). The municipal advisor may assist the issuer in filling out the team with other professionals. The advisor may work with the issuer to develop a plan of finance and financing schedule and may assess alternative financing strategies. The advisor may advise on the sale method and may conduct the bidding if the issuer chooses to use a competitive process. The advisor may also prepare preliminary cash flows and analyze opportunities to refund outstanding debt.

LEGAL COUNSEL – The industry identifies different legal roles in a debt transaction, including bond counsel, disclosure counsel, tax counsel, and underwriter counsel. In cases involving one or more of these roles, the work may be performed by different individuals and sometimes different firms. In at least the case of underwriter counsel, the client is not the issuer but the underwriting firm. Legal counsel may assist the issuer in complying with any administrative tasks, including receiving the approval of the agency’s governing body to issue debt. Legal counsel may also interpret tax law, contracts, or outstanding litigation on behalf of the issuer. Underwriter counsel is typically responsible for drafting a purchase agreement and undertaking any due diligence required.

BANKER OR UNDERWRITER – Municipal securities may be purchased by a middleman who ultimately redistributes them to end market investors. This financial intermediary is an underwriter responsible for buying part or all of the initial debt. In a negotiated deal the underwriter may work with the borrower to develop a finance plan and structure the debt. The underwriter may work on developing a marketing memorandum or offering documents and may solicit pricing from other members of the underwriting team. In a competitive sale, the underwriter prepares a price bid and submits it to the issuer.

CREDIT RATING AGENCIES – Issuers of municipal securities may seek to improve the marketability of their debt and thus lower their borrowing cost by having the debt rated by a nationally recognized, independent rating agency. Ratings agencies apply a set of criteria, sometimes unique to the agency, to assess the borrower’s organization and financial composition to project the probability that it will meet its repayment obligations over the term of the debt.

FEASIBILITY AND MARKET ANALYSTS – In most types of debt, particularly debt supported by special revenues or taxes, the issuer may benefit from engaging feasibility or market analysts to support the financing plan. Their analysis may evaluate the financial and economic viability of the plan, particularly the adequacy of the revenues to repay the debt.