The purpose of marketing the bonds in advance of the sale is to effectively communicate the strength of the borrower, as well as the features of the bond structure, which make it appealing to investors. Greater demand from various types of investors for the bonds increases 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 the Authority’s bonds. A well thought out marketing plan designed and implemented by an investment banking management team with strong distribution capabilities 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 has requested 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.
The marketing campaign is conducted by the lead or senior manager of the underwriting syndicate and involves disseminating relevant financial, economic and demographic information about the borrower to potential buyers of the bonds through the circulation of the Preliminary Official Statement to investors and broker/dealers; hosting investor meetings and/or conference calls where potential buyers can meet the management of the institution and discuss concerns or issues they may have; and strategically placing advertisements with various media sources where the concentration of prospective buyers is located. The Authority works with the borrower 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.
