Parts 1 and 2 here –
School Life Munibond:::Part 1
School Life Munibond:::Part 2
So let’s (final) get to the Wall Street side of Bond.
Bond underwriting This is the process in which an investment bank examines the financial situation of the issuer (school district) to determine risks and sets a fair and reasonable price of the bond. Underwriters look at the issuer Credit ratingcash flow, and default risks by issuer.
The underwriter also represents the publisher of “Roadshow.” A sales effort to market, seduce and ultimately sell bonds, such as bond mutual funds, school contributions, net worth individuals, or other money managers.
The underwriter also agrees to purchase bonds that cannot be sold to customers in order to generate liquidity and own some of the financial risks in exchange for a large underwriting fee.
To really understand the inside and outside of the bond issue, I pulled the previous one. Details of the 2022 bond issuance From the EMMA website, see how the publication was configured and deployed.
You can learn all the details about bonds from the documents (called prospectus).
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PNC Capital Markets LLC is a listed bank that underwrites bonds.
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The county has excellent AAA credits
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All legal and regulatory details are spelled out with sign-off and notarization
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A unique CUSIP ID is assigned to a bond, which tracks and properly identifies
The bonds were eventually “oversubscribed.” This means there was a demand for more bonds than the supply could handle. Some potential buyers missed possession of the work.
Once the underwriter bank collects a list of buyers of interest, it announces all details about the date the bond opens for the transaction and the structure of the bond.
On the first day of a transaction, bonds mean “breaking.” That is, each interested buyer submits the bid price and quantity that they wish to purchase.
A dealer who works with the underwriting team (where Ex-Morgan Stanley’s underwriting team works with Morgan Stanley’s Municipal Bond Sales and Trading Desk) to recruit and execute customer orders at advertised prices.
The transaction is posted on the Trace Feed, which is an integrated feed for bond securities, for the world to see. Think of it as a stock ticker tape.
Once the bond is issued, the bond will be spread through the financial system for portfolio holdings or secondary market transactions.
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Underwriting bank bond trading desks hold some bonds in the book because they have stock to sell to more customers and maintain financial exposure for agreed time
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Some bonds will sit in the institution’s book during all periods and mature as expected
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Some bonds trade as part of a larger bundle of structured products combined with bundles of bonds to form new products
Finally, it’s rare for anyone on Wall Street to worry about bonds building schools for children or raising property taxes on the community. They are concerned about selling inventory and making profits. But whether you like it or not, without the help of Wall Street, this kind of school bond, or any other 1000s published nationwide, would never happen.
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