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January 30, 2025 | Maxwell Wilkinson, Vice President
Bond Pricing in Capital Markets
Though there are many steps involved in successfully completing a financing in the capital markets, the pricing of the bonds themselves is one of the most important. Given its vital economic implications, having a municipal advisor (“MA”) providing advice, support, and advocacy throughout the process can be extremely beneficial in ensuring that borrowers can achieve optimal pricing results.
How Municipal Advisors Help Achieve Optimal Bond Pricing
Even before the day of the bond sale, the advisor will work closely with the borrower and underwriter(s) to analyze and determine how best to structure the bond financing. This structuring can reflect a variety of considerations to help the borrower achieve their overall financial goals. These include exploring the optimal bond amortization of a new money financing, evaluating whether a uniform or accelerated savings structure is better suited for a refunding bond issue, or managing call optionality by reviewing different couponing options for callable bond maturities. Many structural elements can be adjusted on the pricing date depending on market conditions and investor demand, but a planful, carefully evaluated approach to bond structuring ahead of the pricing itself assists the borrower in understanding the benefits and tradeoffs involved such adjustments and helps them to make decisions accordingly.
Advocacy for Competitive Credit Spreads
Beyond the bond structuring aspects, a municipal advisor also provides a crucial view of what the credit spreads (and by extension, the interest rates) on any given financing should be. With the ability and expertise to evaluate market conditions and analyze pricing results for other recent comparable transactions, municipal advisors can determine what type of pricing levels their clients should be able to achieve. More importantly, advisors serve as advocates on behalf of borrowers and issuers both before and during pricing. An MA provides this advice independent of the underwriter, whose ultimate goal is primarily to ensure the bonds are sold, not to achieve the lowest cost of capital. If an underwriter is taking an overly conservative view of the borrower’s credit, they may be leaving key basis points on the table that cannot always be clawed back through repricing of the bonds. An MA provides pressure to drive aggressive but fair spreads that might not otherwise be attained without such pressure and negotiation. Though municipal advisors play a key role in many aspects of a financing process, their experience and support during pricing are a critical part of delivering the best possible results for borrowers.
Meet the Author:
Maxwell Wilkinson | mwilkinson@blueroseadvisors.com | 952-746-6048
In his role of Vice President, Max Wilkinson manages a number of the firm’s clients, ensuring that their transactions progress smoothly and effectively throughout the financing process. He has significant expertise in the preparation of credit and debt capacity analyses and is experienced with the pricing and execution of fixed rate bond transactions, direct purchase bonds, and derivative and reinvestment products. Mr. Wilkinson is closely involved in every step of the financing process for clients, from initial capital planning stages all the way through closing. He joined Blue Rose Capital Advisors in 2016.
About Blue Rose Capital Advisors:
Blue Rose Capital Advisors is an independent financial advisory firm that serves the higher education, healthcare, non-profit, government, and corporate sectors. Blue Rose provides debt, derivatives, reinvestment, strategic and financial consulting services, and other specialized services to help clients achieve their goals. Blue Rose is registered as a Municipal Advisor with the Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB).
Blue Rose brings expert guidance and transparency to the often complex and opaque sectors of the capital markets. We embrace a client-first approach and work tirelessly to strengthen their debt transactions, governance, and balance sheets. With our wealth of real-time data, sophisticated modeling capability, and deep industry relationships, we can deliver solutions to almost any financing challenge.
Contact Blue Rose today:
Media Contact:
Laura Klingelhutz, Marketing Coordinator
952-208-5710
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