Debt and Technology:
Using the Internet to Competitively
Market Bonds
Alternative forms of
Issuing Long Term Debt
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Bank Loan
Bond Pool
Bond Issue
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Factors in Determining
which Long Term Debt
Alternative to Select
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Size
Term
Interest rate exposure
Flexibility in prepayment
provisions
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If a Bond Issue is the Alternative selected, a
determination needs to be made whether
the bonds are placed in the market using
either the competitive or negotiated
method of sale.
The following checklist should provide some guidance on which
method of sale to employ.
Conditions Favoring A
Competitive Sale
Debt Structure
Conditions Favoring a
Negotiated Sale
Pledged Revenues
General Obligation or
Strong System Revenue
Project Supported Revenues
Security Structure
(for Revenue
Bonds)
Conventional Resolution and Cash
Flow; Rate Covenant and Coverage
Unusual or Weak Covenants
Subordinated Debt
Debt Instrument
Traditional Serial and Term, Full
Coupon Bonds
Use of new structures, or Derivative
Products and Structure to Attract
Particular Investors
"A" or better
Stable
Below Single "A"
Weak but Improving, or Under Stress
Credit Quality
Rating
Outlook
Issuer Characteristics
Type of
Organization
Frequency of
Issuance
Broad-Based General Purpose
Borrower
Special Purpose, Independent
Authority
Regular Borrower in Public Market
New or Infrequent Issuer
Market Awareness
Active Secondary Market with Broad
Investor Base
Investor Comfort
Well-Known, Stable Issuer
Little or No Institutional Awareness
of Issuer, Historical Antipathy
Issuer Experiencing Significant
Financial, Legal or Other Problems
Market Conditions
Interest Rates
Stable, Predictable Market
Volatile or Declining Market
Supply and Demand
Strong Investor Demand, Good
Liquidity, Light Forward Calendar
Oversold Market, Heavy Supply
Policy Considerations
Participation in Sale
Bonds
Broad Market Participation Desired for
Sale of Bonds
Desire to Direct Business to DBE or
Local/Regional Firms
Stimulation of
Investor Interest
Broad Market Participation Desired for
Desire to Direct Business to
Purchase of Goods
Local/Regional Investors
Source: "Guide to Effective Debt Management" Published By:
National Government Finance Officers Association.
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If a competitive sale is selected, a
determination is made whether the
bonds should be sold using the
traditional approach of obtaining
bids by facsimile or over the
Internet.
Some points for discussion regarding the
decision include:
 Size of the Issue
 Term of the Issue
 Cost of the Internet bidding agent
and an assessment as to the
reasonableness of recouping the fee
in the bidding.
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If a competitive sale of bonds over
the Internet is selected, these steps
are followed:
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A Preliminary Official Statement and
Invitation to Bid are prepared
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A Preliminary Official Statement is a
prospectus that includes the economic,
demographic and financial conditions of the
issuer.
An Invitation to Bid is a set of
specifications for acceptance of a bond
purchase proposal outlining the terms and
conditions for proposal acceptance. Such
terms and conditions include:
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Call features;
Underwriter’s discount or commission;
Maturity structure of the issue;
Time and method of accepting the bids;
Submitting a bid with or without municipal
bond insurance.
The Preliminary Official Statement and
Invitation to Bid documents are posted on
the Internet website.
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Selling Bonds Competitively on the
Internet (Continued)
At the established auction bidding date
and time, underwriters submit their
bids on the Internet bidding website
for:
 The entire issue of bonds, also known
as an All-or-None Bid (“AON”).
 Specific maturities within the bond
issue, also known as a Maturity-byMaturity Bid (“MBM”).
 The auction typically lasts fifteen
minutes.
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Selling Bonds Competitively on the
Internet (Continued)
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The True Interest Cost (the “TIC”), a
method of calculating the all-in
borrowing rate of a bond bid similar to
the conventional annual percentage
rate calculation for home mortgages, is
calculated.
The TIC of each AON bid and the
combination TIC of the best MBM bid is
calculated.
Whatever bid provides the lowest TIC
to the issuer is awarded the bonds,
subject to the issuer’s action at a
public meeting.
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Selling Bonds Competitively on the
Internet (Continued)
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During the auction period, a bidder can
submit as many bids as desired on
either the AON or MBM format.
Once a bid is submitted, the bidder
only knows whether or not their bid
produces the lowest TIC. As a result,
if a bidder is truly interested in
purchasing the bonds, they can
continue to submit bids producing a
lower TIC until it is indicated their bid
is the lowest, or the auction period
ends.
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Ten Steps Taken By Grant Street
Group When Preparing An Internet
Bond Auction
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Financial Advisor notifies Grant Street
Group (“GSG”) of desired date and
time of sale; GSG provides editorial
assistance with draft Notice Of Sale, if
necessary;
Financial Advisor provides Final Notice
of Sale and Preliminary Official
Statement to GSG;
GSG extracts pertinent data and
information from Notice Of Sale and
Preliminary Official Statement and
creates the auction on the web site;
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Ten Steps Taken By Grant Street
Group When Preparing An Internet
Bond Auction (continued)
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The Notice Of Sale and Preliminary Official
Statement are secured in a PDF format
and posted to the auction created on the
web site;
GSG prepares an excel spread sheet which
is used to verify the True Interest Cost
(“TIC”), the customary basis of award;
Financial Advisor and GSG together review
the Term Sheet, Notice Of Sale and the
auction itself to ensure that all parameters
of the auction have been correctly set in
accordance with the provisions contained
in the Notice Of Sale;
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Ten Steps Taken By Grant Street
Group When Preparing An Internet
Bond Auction (continued)
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GSG sends blast e-mail to its national data
base of some 500 broker-dealers and
institutional investors announcing the
Internet Bond Auction;
GSG makes follow-up telephone calls and
monitors indications of bidding interest
from underwriters; Financial Advisor and
Issuer are provided with updates
regarding projected bidder participation;
GSG assists the Issuer as necessary with
obtaining an ID and Password so they can
observe the actual auction;
GSG provides post-auction support to
Financial Advisor and Issuer with auction
reports and bid detail data.
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