The purpose of marketing the bonds in advance of the sale is to create greater demand from various types of investors increasing competition for them, which lowers the overall cost to the borrower.
Good credit, strong investor demand and timely market entry are key factors in the successful marketing of a bond issue. The marketing campaign is conducted by the lead or senior manager of the investment banking syndicate and involves disseminating relevant information about the borrower and project to be financed to potential buyers of the bonds. The Authority works with the borrower, the financial advisor and the underwriters to determine the strategy of the marketing campaign so that targeted buyers are informed, yet assuring that costs of issuance are minimized.
An investment banking management team with strong distribution capabilities supported by additional co-managers will ensure a broad investor base for the Authority’s bonds. A broad investor base would include several different types of institutional and retail buyers. Institutional buyers include, but are not limited to, money market funds, mutual funds, bond funds, insurance companies, banks and corporations.
Retail investors are largely individuals, but may also include investment advisors and bank trust departments who invest on the behalf of individuals. A large retail participation is helpful in lowering borrowing costs because the retail buyer is typically less rate sensitive than the more sophisticated institutional investor. In some transactions, the Authority encourages the use of a retail pre-order period whereby retail buyers are given priority or preference over institutional buyers which has, in turn, helped to lower the institution’s cost of funding. The decision to target retail participation is based upon the credit strength of the borrower, the structure of the bond issue and the distribution capabilities of the underwriting team. The Authority assists the borrower in assessing the benefits of utilizing a retail pre-order period.
