A More Realistic New Year’s Resolution for Issuers

January 3, 2017

 

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According to statistics, about 45% of Americans set New Year’s resolutions each year. Perennially, the top goal is to lose weight.

Unfortunately, only 8% report that they achieve their goal to drop the pounds. How about setting a more realistic New Year’s resolution this year? Instead of dropping weight, set a goal to drop the yields in your next bond sale.

The way to do this is pretty straight-forward: make it easy for bond investors to find you as an issuer and to find your most recent interim financial data. Essentially, it requires a change in mindset towards disclosure and investor outreach. If you can view investor relations as a tool and not as a chore, the benefits could be long-lasting for your organization.

Replace the old, so-2016 way of thinking…with the new, 2017 way of thinking. For example:

2016 Thinking: Bond investors don’t care about current data…2017 Thinking: Yes they do! Investors care more about where an issuer is going (an operating budget) than where an issuer has been (an audit)

2016 Thinking: If I do the bare minimum disclosure as an issuer, I’ll be fine when I issue bonds…2017 Thinking: Maybe that’s true from a strictly compliance perspective. But if your data is not reliably easy to find, investors may charge an uncertainty premium to your next bond sale that may cost thousands or hundreds of thousands of dollars

2016 Thinking: Investors only care about bond ratings…2017 Thinking: No, most of the big investors who largely determine a bond’s pricing in the primary market undertake their own internal credit process. Ratings matter, but to a lesser degree than they did 10 years ago. Data matters – and current data matters a lot

2016 Thinking: I’ll let my advisor or banker handle investor outreach…2017 Thinking: Issuers shouldn’t delegate such an important and potentially costly aspect of a bond pricing. It’s up to the issuer to look for ways to distinguish their bond programs from others

2016 Thinking: The markets are very favorable to issuers, and access to low-cost capital is easy…2017 Thinking: The market has changed – or at the very least, is in the process of changing – to one that is much less favorable to issuers. Bond funds are experiencing sharp redemptions, insurance companies may curtail their buying until they have a clearer picture of their future tax rates. Tax rates may make muni’s less desirable overall…all of this adds up to a market environment in which bond investors will be very selective going forward

2016 Thinking:Investor relations is a cost…2017 Thinking: Investor relations is an investment, not a cost, and one that may provide a very healthy return over the long run to issuers and their constituents. Just look to the corporate bond market as evidence of its value: corporations view IR as an essential tool of their financing programs

2016 Thinking: Investor outreach is costly and time consuming…2017 Thinking: Not with BondLink’s investor platform. BondLink is affordable and very easy to use. An issuer can update their “profile” by sharing a new document or data point with investors in a matter of seconds

2016 Thinking: There are no tools to help with my disclosure/investor relations…2017 Thinking: BondLink is the only company providing investor platforms for municipal issuers

We hope you can achieve all of your New Year’s resolutions in 2017. But when it comes to your debt financing program, aim high and take steps to distinguish your bond program by making it easy for investors to buy your bonds!

 

Colin MacNaught

BondLink CEO & Co-Founder