Chronology of a Typical New York City Bond Financing

Prior to the sale of City debt in the capital markets, the Mayor’s Office assesses the City’s capital needs and then determines an amount to be borrowed.  

If the bonds are to be sold on a negotiated basis, an organizational meeting is convened. The meeting is attended by the selected lead underwriter(s), the City’s bond counsel, underwriter’s counsel, disclosure counsel, representatives of the Comptroller’s Office, the Office of Management and Budget (OMB), the City Law Department, the Department of Finance, and the City’s financial advisor. Agenda items include the market environment and the best timing for the deal, rating agency issues and/or presentations, structure of the bond deal, financing schedule, and marketing to various types of investors.

During the subsequent two weeks, the structure of the transaction is refined. Simultaneously, versions of all legal documents governing the framework of the City's bond issues, including the Preliminary Official Statement (POS) and the final Official Statement (OS), are drafted and reviewed versions.

The POS, which is similar to a Prospectus in an equity offering, contains comprehensive information about the City and its operations and is generally mailed out to prospective investors, rating agencies, fiscal monitors and credit-enhancers prior to the sale of the securities. The final OS is printed and mailed after the sale is completed. During this period, "due diligence" meetings are held with various City agencies to insure that all material information is disclosed in the POS.

Before printing and mailing the POS, officials and staff members from the Comptroller’s and Mayor’s offices, along with the City’s financial advisor(s), may make presentations to the rating agencies concerning the City’s current and projected budget in an attempt to maintain and/or seek an upgrade of the City’s bond ratings. Following the distribution of the POS, the City may also embark on an investor road show, allowing City officials to meet with major investors to discuss the City’s current operations, forecasted budget, capital plan, and economic environment, as well as the terms of the current transaction.

Before bonds are sold, City officials and the lead underwriter(s) assess and discuss the market environment at a pre-pricing meeting. Because institutional buyers are looking for large blocks of bonds, and may purchase whole maturities, the City holds a retail order period to ensure access for individual investors. Prior to establishing a retail order period for individual investors, pricing views are obtained from the management group by the lead underwriter(s) to establish a consensus. In addition to establishing retail and consensus scales, or prices for various maturities, the lead manager obtains views regarding investors’ appetite for bond insurance, premium bonds, discount bonds, variable rate bonds, call features, etc.

After reviewing the management groups’ scales, the City and its financial advisor(s) make adjustments and recommendations for the retail order period. Upon completion of the retail period, there is an opportunity to revise prices based on market tone and demand. Typically on the next day, and contingent on market conditions, the unsold bonds in various maturities are subsequently sold to institutional investors at the prevailing yields. A final pricing meeting is held to determine if these yields are acceptable.

After the sale is confirmed, the signing of the Bond Purchase Agreement by representatives of the Mayor, the Comptroller and the lead underwriter is followed by the printing of the final Official Statement, or OS. An allotment meeting, generally held the day after bonds are sold, is held to allot the securities to members of the underwriting group based on the type of orders submitted, overall demand, and other factors. Subsequently, the bonds are officially released to the underwriting group for trading in the secondary market.

The transaction is now in its final phase. The structure of the transaction, expenses, payment and wire instructions, delivery of bonds, legal documentation, opinions of counsel, and auditor’s opinion are finalized in anticipation of the closing of the transaction. On the day of closing, which generally takes place 10 days to two weeks after the sale date, all funds are delivered to the respective parties and all documents are signed by the relevant parties.

For a competitive bond sale, the process is much the same as above, except that there is no selected lead-underwriter, no pricing, no retail order period, and there is not usually an investor relations effort. Sealed or electronic bids are taken at an appointed time, opened, and read aloud to all the assembled bidders. The City and its financial advisor(s) then determine the winning bidder based on the lowest true interest cost.

The primary difference for a variable rate deal is that the interest rate varies according to a formula or procedure.  In some cases the City procures a letter of credit (LOC) or liquidity facility, which backs the transaction. The City’s variable rate debt trades not on the City’s rating but on the credit rating of the LOC bank or other liquidity provider. The LOC provider assumes responsibility for liquidity of a portion of the City’s outstanding variable rate debt. The LOC or liquidity facility is drawn upon if there are no buyers in the marketplace for the City’s remarketed variable rate debt.

In a continuing effort to save money for the City, the Mayor's Office of Management and Budget and the Comptroller's Office pro-actively monitor the short-term variable rate portfolio to achieve low interest rates and low fees to outside parties.