WSHFC partners with BondLink to bolster transparency and engage potential investors

(SEATTLE, WA August 29, 2023) — The Washington State Housing Finance Commission (WSHFC) is pleased to announce the launch of WSHFCbonds.bondlink.com, a new investor relations website focused on its single-family bonds. 

Developed in collaboration with BondLink, the website aims to provide the community, existing bondholders, and prospective investors with convenient access to comprehensive financial insights concerning the Commission’s single-family debt program.

The website’s introduction coincides with preparations for a forthcoming single-family bond issuance. These funds will play a pivotal role in supporting the Commission’s affordable home loans for low- and moderate-income families across the state of Washington.

“We take pride in our mission-driven work to make housing more accessible to our citizens,” said Fenice Taylor, Senior Finance Director. “This level of transparency, and ease of communicating with investors, that we’re now able to achieve with BondLink will undoubtedly help us direct capital toward our home-loan programs even more effectively.”

The new, focused website will allow WSHFC to centralize investor access to financial information and documentation relating to its single-family bond financing programs. BondLink successfully collaborates with other housing agencies across the country, including Illinois Housing Development Authority, DC Housing Finance Agency, and Texas Department of Housing and Community Affairs, in addition to surrounding municipalities like King County, WA and the State of Oregon.

Colin MacNaught, CEO and Co-founder of BondLink, expressed enthusiasm about the partnership, stating, "It’s so rewarding to see a finance team like the Commission’s recognize the impact that coordinated, structured investor engagement can have on their bond programs. We’re really proud to power their transparency initiatives and look forward to supporting them every way we can moving forward.”

For additional information regarding WSHFC's new single-family investor relations website and updates regarding the upcoming single-family bond issuance, please visit WSHFCbonds.bondlink.com. 

###

About Washington State Housing Finance Commission

The Washington State Housing Finance Commission is a publicly accountable, self-supporting team, dedicated to increasing housing access and affordability and to expanding the availability of quality community services for the people of Washington. The Washington State Housing Finance Commission (the Commission, WSHFC) was created in 1983 by the legislature of the State of Washington (the State) to “act as a financial conduit which, without using public funds or lending the credit of the state or local government, can issue nonrecourse revenue bonds and participate in federal, state, and local housing programs thereby making additional funds available at affordable rates to help provide housing throughout the state.” The state legislature later authorized the Commission to issue bonds to finance or refinance nursing homes and capital facilities owned and operated by nonprofit corporations, beginning farmers/ranchers, sustainable energy and energy efficiency retrofit programs. 


About BondLink

BondLink, a cloud-based investor relations and debt management platform for the municipal bond market, helps issuers engage more bond investors through transparency and actionable insights. Founded by CEO Colin MacNaught, who spent seven years issuing nearly $25 billion in bonds on behalf of the Commonwealth of Massachusetts, and CTO Carl Query, BondLink went live in 2016. BondLink clients issued more than $48 billion in bonds in 2022. BondLink provides its issuer clients with tools to manage their capital financing programs more efficiently while providing investors with the interim financial reports and data they need to close information gaps and make informed decisions through a single platform. The company is backed by top investors within the municipal bond market, including Intercontinental Exchange and Franklin Templeton. Headquartered in Boston, BondLink was recently named to the 2023 GovTech 100, marking its fifth consecutive appearance on the annual list.

BondLink Contact Information:
Colin Jacob
Director of Marketing
cjacob@bondlink.com 

City partners with BondLink to bolster transparency and attract new investors.

(DURHAM, NC, August 16, 2023) — The City of Durham, North Carolina, is proud to announce the launch of its new investor relations website, CityofDurhamBonds.BondLink.com. 

Developed in collaboration with BondLink, the innovative website will provide the community, current bondholders, and future investors with easy access to comprehensive financial information about the City’s debt and capital programs. 

As part of Durham’s commitment to continuous improvement and development, the website launch comes ahead of a bond sale to support various projects that will enhance the city's infrastructure, promote sustainable growth, and strengthen the community.

Durham's exemplary financial standing sets it apart as one of the 44 cities nationwide rated AAA by S&P, Moody's, and Fitch. This prestigious AAA rating signifies the highest level of creditworthiness and reflects Durham's robust financial management practices and prudent fiscal policies. 

"Our AAA rating is a testament to our city's financial stability and responsible management of public funds. We’re always looking for ways to advance these practices and be a leader across all aspects of our operations,” said Finance Director and Chief Financial Officer Tim Flora with the City of Durham. "By partnering with BondLink to launch our new investor relations website, we’re aiming to attract a broader range of investors, particularly local retail buyers, who share our commitment to socially responsible initiatives.” 

BondLink, the leading cloud-based investor relations and debt management platform for the municipal bond market, will enable Durham to provide investors with a centralized platform to access critical financial data and documentation related to its financing programs. BondLink has successfully collaborated with surrounding municipalities, including Lincoln County, Johnston County, and the City of Charlotte.

Colin MacNaught, chief executive officer and co-founder of BondLink, expressed his excitement about the partnership stating, "Durham's dedication to financial transparency and its stellar AAA rating make it a standout city in the municipal bond market. We’re thrilled to work closely with their treasury team to enhance their investor relations strategy and help them attract a diverse group of investors. This collaboration serves as an inspiring model for other cities to follow suit and optimize their financing programs."

For more information about Durham's new investor relations website and updates on the upcoming bond sale, visit CityofDurhamBonds.BondLink.com.

###

About the City of Durham

While the City of Durham, now the fourth largest city in the state, was once known as a banking and tobacco center, many other industry sectors have been drawn to the city over time. With the birth of the Research Triangle Park (RTP) in the 1950s, Durham began to take on a new look that has evolved this region into a global center for information technology, biotechnology, pharmaceuticals, manufacturing, and medicine.

Durham is famously known as the “Bull City” due to its origins in tobacco manufacturing as well as the “City of Medicine” since healthcare is a major industry including more than 300 medical and health-related companies and medical practices. Between 1900 and 1925, two well-respected educational institutions were founded, North Carolina Central University and Duke University. These institutions have established Durham as a city of high academic acclaim, producing well-qualified candidates for the various industries that call Durham home.

Durham's credit position is excellent. There are approximately 22,500 cities in the U.S. and currently Durham is one of only 44 cities nationwide to receive the top-level AAA credit rating from all three major national bond rating agencies, Standard & Poor’s, Moody’s, and Fitch. This rating makes the City of Durham one of the highest-rated public entities in the United States. For more information, visit www.durhamnc.gov and connect on social media.


About BondLink

BondLink, a cloud-based investor relations and debt management platform for the municipal bond market, helps issuers engage more bond investors through transparency and actionable insights. Founded by CEO Colin MacNaught, who spent seven years issuing nearly $25 billion in bonds on behalf of the Commonwealth of Massachusetts, and CTO Carl Query, BondLink went live in 2016. BondLink clients issued more than $48 billion in bonds in 2022. BondLink provides its issuer clients with tools to manage their capital financing programs more efficiently while providing investors with the interim financial reports and data they need to close information gaps and make informed decisions through a single platform. The company is backed by top investors within the municipal bond market, including Intercontinental Exchange and Franklin Templeton. Headquartered in Boston, BondLink was recently named to the 2023 GovTech 100, marking its fifth consecutive appearance on the annual list.

Over the last several weeks I’ve had the opportunity to join multiple issuer presentations to institutional investors. These are a longstanding practice in our market that continue to be beneficial for many issuers, and they’ve taken different shapes over the years.

Virtual roadshows and newer technologies like Zoom were vital to issuers engaging investors during the difficult COVID period of 2020 and 2021 when in-person meetings were near impossible. That COVID period also included extraordinarily Federal support for the muni market, which pushed rates and spreads to lows and reduced some urgency around investor meetings.

The choppiness of the bond market in 2022, along with the reduced COVID risk, produced one notable silver lining: the return of in-person issuer investor presentations.

After sitting in on a number of these recently, I came away with some refreshed thoughts. 

I think these can be invaluable in terms of making a general connection with your bondholders. For investors, these are incredible opportunities to go deep on a topic with a CFO or state budget director. A recent poll conducted by Corbin Advisors found that a whopping 87% of investors look forward to the flexibility around a live Q&A with the issuer, and 83% pay close attention to presentations conducted by leaders outside of CEO & CFO roles. It can be so much easier and impactful for investors to consume information in this way vs. constantly relying on reading flat documents online. 

The ability for issuers to respond is a big part of how investors are evaluating management as part of their broader credit review, too. It’s equally important for issuers to effectively communicate their stories to investors during these valuable in-person periods, along with proactively presenting content that addresses topics, concerns, questions, etc. that are top of mind for investors in the room. Overwhelmingly, investors want issuers to address their long-term strategy, capital allocation priorities, and long-term targets. 

But in-person investor events are still going to be rare going forward – they’re time consuming and can be expensive for issuers. So, what are the keys to maximizing your limited time with investors? How do you take your investor meeting from good to great, to borrow from Jim Collins, so you make all that time, effort, and capital worth it?

The National Investor Relations Institute (NIRI) has a lot of good resources on this topic on their website. If you have an investor meeting planned for 2023, or are thinking about adding one into the mix, this virtual presentation from NIRI can be worth your time.

2022’s muni bond market presented a number of challenges to issuers.

To start, interest rates ended up significantly higher over the course of the year. Issuers also experienced a series of sudden, acute swings in rates, particularly in periods of the year when supply (bond issuance) tends to be the most robust. 

And despite credit in investment grade sectors remaining generally solid due to federal support and red hot economic activity, pricing spreads on new issue bonds also widened from prior years as investors were much more selective given the outflows they had to manage and periodic swings in rates.

These market challenges were a shock to the system given how issuer-friendly the bond market has been over the last roughly twenty years: characterized by low rates, tight pricing spreads, and a consistent investor demand. 

This all added up to a market where price discovery was murky at best. 

What do I mean? If you were an issuer with a competitor sale in a week, it would be difficult to have a high degree of confidence as to where your bonds would price or what the market was determining as the fair price for bonds.

With the Fed expected to keep hiking rates at least through Q2 of 2023, these conditions are expected to remain a challenge for public sector CFO’s and debt managers. We’ll cover in subsequent blogs what some issuers are doing to adjust to this new normal.

As the calendar flips over, just about everyone takes some time to reflect on the past year to assess what was and to envision the year ahead. We’ll be doing that over the next few blogs.

Before we pull out silver linings from a 2022 market that was brutal to most bond investors and issuers, let’s look at some forecasts of what may be to come. 

Bloomberg has a very comprehensive survey of all major banks and asset managers for different facets of the capital markets, from forecasts of growth and inflation to expected monetary policies. 

Most forecasts seem to see 2023 as a tale of two halves. Markets are likely to first focus on higher rates until the Fed pauses its rate hikes in March at either 5% or 5.25%. Because inflation is expected to persist, forecasts are not factoring in rate reductions even when economies start to experience negative growth. Here is the survey.

Closer to “home”, Bloomberg’s Eric Kazatsky hosted an excellent podcast last month with three of the top strategists in the muni bond market: Peter Degroot, Head of Municipal Research and Strategy at JP Morgan; Vikram Rai Head of Municipal Strategy at Citi; and Mikhail Foux Head of Municipal Research at Barclays. 

To sum, these strategists are expecting muni bond supply of $375 billion (JP Morgan) on the low end to $450 billion (Citi) on the high end. Total supply is held back by the lack of refunding opportunities, especially the lack of taxable refundings to take out tax-exempt bonds. I encourage all to listen to the December edition of “Masters of the Muniverse” on Apple Podcasts.

Great lessons from the Golden State.

It’s only fitting that BondLink held one of our largest events of the year in the State established as one of the largest muni issuers in the country - California. 

A packed room full of muni finance professionals came to Los Angeles County to hear what’s top of mind for local issuers, gain insights from leading investors in the State, and spend some rare quality time outside of transactions with one another. 

To put it modestly, an impressive speaker lineup was assembled to address the group:

• Keith Knox, Treasurer, Los Angeles County 
• Dan Wiles, Assistant Treasurer & Tax Collector, Los Angeles County
• Allen Li, Managing Director Municipal Bonds, Guggenheim Partners
• Marla Bleavins, CFO, Deputy Executive Director of Finance & Administration, Port of Los Angeles
• Tatiana Starostina, Chief Financial Officer, Los Angeles World Airports
• Rodney Johnson, Deputy Executive Officer, Finance, Treasury, Los Angeles County Metropolitan Transportation Authority
• Adam Bauer, President and Chief Executive Officer,  Fieldman, Rolapp & Associates
• Sam Smalls, Treasury and Debt Manager, Metropolitan Water District of Southern California
• Jon Schotz, Co-Managing Partner, Saybrook Fund Advisors, LLC

The skies may have been cloudy on Wednesday, but the lessons were clear. Here were some of the best points made from our speakers throughout the day.

1. Issuers can benefit from making financial information more accessible and more timely

Plainly put - investors are doing more research with fewer resources. Volatility has now been a key theme in our market for months. As some municipalities are flush with cash from various sources, other obligors are facing tougher times with restricted budgets and darker outlooks. Leaner research teams on the buyside are being forced to execute more difficult surveillance, and it’s common to hear that a buyer will pass on a bond offering simply because they can’t find the necessary information in time to make a decision. 

That’s why it’s more important than ever for issuers to make their information as easy to find and accessible to all. Issuers who make it easier for investors to find financial reports, operating documents, and more on a consistent basis stand a good chance to earn lasting, beneficial goodwill with the buy-side. Speakers like Los Angeles County, Los Angeles Metro, and the Port of Los Angeles are all doing exactly that with their investor relations programs.

2. Everything “green” is still evolving

More issuers are experimenting with green-labeled bonds, more thorough sustainability reports, and other dedicated efforts to report on specific ESG credit factors. A consistent result of these efforts has been increased investor interest, which can have multiple benefits on an issuer’s capital program. 

While some pundits will say that all municipal bonds are in some fashion sustainable, bond investors appreciate the explicit messaging around an issuer’s environmental or sustainable goals. Finance officers interested in exploring the green bond market should observe how other issuers are handling ongoing reporting around the environmentally beneficial projects that are funded by green bonds. 

In the meantime, what’s the most important thing we can all do? Ensure that all your information is reaching the market, so all interested parties can have informed conversations and make educated decisions.

3. Build and rely on a strong network

Something that really stood out is how every speaker mentioned at least one valuable piece of knowledge they’ve learned from a close peer in our market. 

As the bond market continues to grapple with higher rates, lowering of investor demand, and volatility, it's crucial to stay in the know with how other issuers are approaching their capital financing needs. Through trade associations like the GFOA, issuers can tap their network for valuable approaches. You never know what creative strategy, financing structure, or investor outreach step might benefit your bond program. 

Governments in the muni bond market will be challenged more than ever in 2023. BondLink is committed to initiating more conversations like the ones we had in Los Angeles County last week so we can all approach the bond market with greater confidence.

Retail investors, whether through mutual fund holdings or individual bond portfolios, are the largest holders of municipal bonds. While mutual funds often drive primary market demand in our market, individual holdings from Separately Managed Accounts (SMAs) or retail buyers can both boost demand for your deals and increase the diversity of your holders.

Investors withdrew $5.53 billion from municipal bond mutual funds in the week ended April 20, according to the Investment Company Institute (ICI). The prior week saw outflows of $7.23 billion. 

If successful, a retail-friendly marketing approach can help offset the diminished demand from institutional investors when fund outflows like these occur. 

Utilizing a dedicated investor relations (IR) website, such as the ones used for decades by corporate issuers, can help issuers cost-effectively, and efficiently, engage retail investors ahead of their next sale. These are easy tools that any government should be using to boost their overall transparency. 

By “engage”, I mean having a strong digital presence with an IR website that’s appealing to institutional and retail buyers, easily found via Google, and makes it  easy for investors to be notified of future bond sales. 

Capturing organic inbound interest and distributing outbound communications may be new concepts to many issuers, but they’re essential strategies in today’s digital age. 

Issuers, both large and small, have found the value of using IR websites to market to retail investors ahead of a bond sale, and developed significant distribution lists of these buyers that can be used again and again for future bond sales. 

Connecticut Green Bank does an exemplary job of appealing to retail investors. 

We know anecdotally that retail likes to buy local, like investing in a project or in a community that they’re familiar with. They also tend to be so-called “buy-and-hold” buyers. 

But these individual buyers have different levels of sophistication. Some retail buyers may not know how to place an order for your bonds. Even those who are capable of purchasing your bonds may miss the deal because of how quickly they come and go in a single morning.

As a result, issuers experience less demand and individuals are often left to the secondary market where they pay more for bonds than during its initial offering. 

While it can take a lot of smaller orders to amount to the order size of a portfolio manager at a mutual fund, cultivation of retail over time can provide investor diversity and better pricing than when solely focused on institutional demand from funds. 

A strong IR website that makes financial information easy to find and raises awareness ahead of your deals is crucial to build that diversity over time.

Below are a couple of best practices we’ve heard from our top issuer-clients who have successfully engaged retail investors for their bond sales. We encourage you to review with your Municipal Advisor and Bond Counsel to see if there is a fit for your bond program: 

1. Announce your bond sale as early as possible by providing notice of the sale on the forward calendar on your IR website.

In other words, give individual investors as much time to consider the bond offering as possible.

2. Once a preliminary official statement is developed, post it at least two weeks before your bond sale on your IR website.

Two weeks is better than one week. Leveraging your free, open-access government or IR website enables you to raise awareness amongst both traditional and non-traditional investors.

3. Send out a press release to local media outlets who are more likely to pick up the news about your sale.

This can be coupled with any announcement of your bond ratings assigned to the deal. If you’re lucky enough to have one, don’t hesitate to work with your internal communications team to do this! 

4. Take advantage of your social media presence. In addition to a traditional press release, announce your sale via social media.

Most governments have social media accounts with thousands or tens of thousands of followers. Not only is this being transparent, but it's casting a wider marketing net for potential non-traditional investors.

5. Digital investor roadshows can be very helpful to investors, including retail, and can be a central component of a retail marketing push.

Roadshows can be a tool to provide context behind the bond offering, and should be considered with the guidance of the Municipal Advisor and Bond Counsel.

6. Provide rating agency reports, which can be hard for retail to otherwise access.

Investors constantly ask to receive the same information that issuers provide to rating agencies so that they can make their own judgments. 

7. Show where or how the bond proceeds are expected to be used.

If there are photos or other descriptions of the projects being funded, consider showing those on your IR website.

8. Provide information on your IR website on how individual investors may buy your bonds.

No issuer is a broker dealer, and thus bonds have to be purchased through the bank underwriting your sale. But providing contact information for the banks involved could be very helpful to investors unaccustomed to buying bonds in the primary market.

If you recognize the importance of retail buyers and make simple, incremental changes to appeal to them, we’re confident you’ll reap the benefits in the future.

Start considering these options today, speak with your finance team, and find out where you can begin. 

Over the past year, a number of hot topics in #muniland have evolved to touch on both investor relations and legal disclosure. In order to help issuers better understand these emerging issues, we co-hosted a four-part webinar series in June with Nixon Peabody, a leading bond and disclosure counsel in the municipal bond market. 

Four webinars in a month required a lot of coordination, but it was worth it for everyone who was able to tune in: the conversations we facilitated amongst issuers, bond investors and counsel uncovered valuable new practices and other take-aways for issuers of all sizes, sectors, and levels of sophistication. 

Here’s what we heard:

1. Digital channels matter more today

Established issuers like Darryl Street (the District of Columbia) and Lisa Eisenberg (Ohio Treasurer of State) discussed how they utilize modern communication channels to reach investors. It’s never been easier to communicate your story with bond investors, and for investors to consume it, thanks to tools like social media (LinkedIn, Facebook, Twitter, etc.) and IR websites. 

Issuers can effectively market a bond sale by efficiently distributing data, being more transparent, and controlling one’s credit story on these specific properties.

On the investor side, we heard that buyers of all sizes rely on digital channels to learn more about issuers, whether or not the issuers are intentionally sharing information. 

Investor information extends to all information that’s reasonably expected to reach investors, and Nixon’s Jade Turner-Bond shared her perspective that developing a disclosure process is just as important as the disclosure itself.

If issuers aren’t providing enough information to make an investor confident, they’ll look elsewhere and potentially find competing or negative information that’s outside of your control. 

The final take-away is that communicating with the market is a process, not an event, and it doesn’t stop at the POS. Many issuers across the country are already experiencing the benefits of more robust, timely, and regular disclosures.

2. Ongoing project updates will be crucial for ESG opportunities

For our second webinar, Issuer Disclosure Requirements for Selling ESG, Sustainable Bonds, we heard from Jenna Bryan-Krug of BlackRock, James McIntyre of New York State Homes & Community Development, and Liz Columbo of Nixon Peabody. This discussion was extremely timely as ESG continues to remain top of mind with bond investors as well as regulators like the SEC, and each market participant brought their own perspective. 

However, all the speakers agreed that issuers have generally focused more on the pre-sale process of demonstrating “green-ness” than on the post-issuance process. 

Developing a process to surface project updates for bond investors over the duration of your offerings is a great way to boost general disclosure and generate a positive sentiment around most issuers’ ESG disclosure.

James McIntyre outlined his process for developing direct relationships with investors. His program has benefited greatly by “following the money” to raise investor demand for his sustainable and social bond program issues, and he encouraged issuers to have more fluid, candid conversations with the buy-side.

3. Issuers should maintain processes to control their credit story

The third webinar focused on the evolving practice of voluntary disclosures to bond investors. David Erdman, State of Wisconsin, joined Anne Ross of the NFMA to unpack how voluntary disclosure evolved in 2020, spurred on by some key actions by the SEC after the onset of COVID-19. 

Early on in the COVID-19 emergency, the bond market’s primary activity ground to a halt and issuers were largely silent on the pandemic’s impact. This was very difficult for bond investors who were dealing with redemptions and needed to quickly decide which bonds to sell and which to hold. 

Later in the emergency, the use of voluntary disclosures by issuers accelerated. Julie Seymour of Nixon Peabody analyzed how this was likely driven by the encouragement of the SEC’s May 2020 joint statement. 

Investors welcomed any communications from issuers throughout the year, whether it involved new information or was simply an update to detail when they could expect more substantial disclosures.

From the buy-side perspective, it became clear that issuers with an existing investor relations program were able to easily provide continual updates to investors; those who did not have an IR website or investor communications process struggled. 

The key take-away: in an emergency, publicly available information about an issuer/organization can get ahead of a formal investor disclosure. Issuers should be aware of that persistent risk and have a process in place to communicate with the market to control the credit story.

Thanks again to everyone who was able to attend any of the sessions, and to all of our speakers who contributed their time and thoughts. 

You can find links to recordings of all these webinars here. We hope to see you at our future events. 

Sarah Wynn has a great article in The Bond Buyer about a bi-partisan push to bring back direct-pay bonds as part of an infrastructure stimulus bill.

Similar to the popular Build America Bonds (BABs) authorized by President Obama for stimulus in 2009 and 2010, the new version of direct-pay bonds would include a subsidy rate of 28% and would be exempt from sequestration.

As with BABs, the issuer would receive a direct payment from the federal government to cover a percentage of the interest costs associated with the taxable bonds.

Sequestration is a big matter for issuers, as many feel burned by the federal government after reimbursement levels in the initial BABs program were reduced many years after the program was instituted. The actual subsidy levels, though, are a matter of policy.

Issuers in #muniland will want to see as high of a subsidy level as possible. But Congress could prioritize different types of infrastructure projects over others. For example, Oregon Senator Ron Wyden has proposed a direct pay subsidy of up to 70% for so-called clean energy bonds. Here’s more on that proposal here. 

From my perspective, bringing back direct-pay bonds would be a significant tool for issuers to reduce their borrowing costs, tap new taxable private capital, and finally start accelerating infrastructure projects across the country.

It is important to note that not all issuers took advantage of the initial BABs program by issuing direct-pay bonds in 2009 and 2010. But all issuers benefitted from that program, as tax-exempt yields nose-dived when billions of dollars in supply shifted to taxable markets. I expect the same would happen again if this sort of program was brought back in 2021. 

The GFOA Committee on Governmental Debt Management recently released an excellent, and timely, best practice on ESG disclosure. As hazards become more apparent in our everyday lives, both investors and rating agencies are spending more time assessing the risks an issuer might face from environmental, social and governance policies.

Here’s a link to the full best practice.

In the guidance published this March, the Committee recommended that issuers take proactive – and voluntary – steps to document risks they’re anticipating and/or measuring. Further, it recommends that issuers share the policies adopted to address those risk factors and circulate them for both primary and secondary market disclosures.

This best practice shows that the muni market can be driven and nimble on disclosure matters.

The importance of ESG disclosure has quickly grown for bond investors over the last few years. Just last month, the Securities and Exchange Commission announced the creation of a climate and ESG task force in its enforcement division to find ESG-related misconduct. This comes on the heels of acting SEC Chair Allison Herren Lee directing the SEC Division of Corporate Finance to increase its focus on climate-related disclosures in company filings.

This best practice is a great step, and the GFOA should be commended for its leadership as this guidance will influence its thousands of members. Impact investing is still evolving, including the use of common definitions, metrics, reporting standards, etc. Notices like this will help cement the urgency behind ESG considerations and hopefully foster more widespread adoption of these practices.

As “social” and “governance” risks catch up to the more-easily measurable “environmental” risks, this guidance, and more like it, will act as a great foundation for the municipal market to lead on ESG disclosure.

Yesterday, President Biden outlined his plans for a roughly $2.3 trillion infrastructure stimulus plan. It’s a big, bold initiative that’s long overdue. Here’s a good story breaking down its components.

The plan will now move to Congress where negotiations and changes will be debated over many months. One concern with the proposal is how it's paid for: higher taxes on corporations and wealthy individuals. I mention this because members of Congress may feel pressure to eliminate or reduce these specific proposed tax increases, which will ultimately impact how much infrastructure investment will be approved.

A surprise in the President’s proposal is that it doesn’t call for any increase in the federal tax on gasoline, whose proceeds are used to fund transportation improvements. This hasn’t been raised since 1993, and it's one reason our roads and bridges have fallen to such disrepair today.

This is as close to a user fee as one can get and thus may be more politically palatable than raising taxes elsewhere. And it would provide an incentive for motorists to consume less gasoline.

It’s also in-line with two of the biggest proposals in Biden’s infrastructure plan: he calls for $621 billion to modernize transportation infrastructure, as well as $174 billion to boost the use of electric vehicles.

I filled up my gas tank this weekend and recall it costing roughly $50. I paid attention to the overall cost, but didn’t do an immediate calculation as to how much of the $50 my gasoline consumption would send in tax revenue to Massachusetts (24 cents per gallon) or the federal treasury.

I’m assuming I’m not a major outlier on this. That’s why I think sliding in a long-overdue tax increase in the federal tax may be a tool that Congress can use to overcome potential resistance to other funding sources and ensure our infrastructure receives the support it deserves.

With the top exchanges for ESG securities, Europe’s markets have been the ones to watch for muni and corporate issuers in the U.S.

It has long been a leader in this space because European market regulators incentivized investors to prioritize more ESG and sustainable securities over traditional or non-ESG type stocks & bonds. The resulting increased demand facilitated more issuance of securities that fit what investors were looking for to benefit from the incentives.

According to this Wall Street Journal article, European regulators are now requiring more reporting from asset managers to measure and disclose the benefits of the projects being funded by ESG securities.

The EU rules are mandatory for investors, who will need to publish a prescribed list of quantitative metrics, including carbon footprint, greenhouse-gas emissions, and hazardous waste emissions. This may be difficult if the issuers are not reporting on the necessary data, but the EU will propose rules in April to increase companies’ non-financial disclosure requirements.

For issuers and investors in #muniland that focus on ESG, Green, or Sustainable Bonds, it will be important to monitor how these new investor and issuer disclosure requirements affect the market. President Biden’s statements around green and ESG have indicated that this type of disclosure might be on the horizon for U.S. capital markets as well.

Climate risk is a growing focus of both investors and regulators, including in the municipal bond market. It’s a new layer of credit that can present institutional investors with a previously unknown amount of uncertainty.

Today’s Wall Street Journal chronicles the steps one company, Hewlett Packard Enterprise (or HPE), took to proactively measure and disclose the risk climate change posed to its operations after the company suffered significant losses from Hurricane Harvey in 2017. It measured potential costs based on a global temperature rise of 1.5 degrees Celsius and a temperature increase of 2 degrees.

The results? The larger temperature increase could result in extreme weather events costing the company more than $800 million, versus $200 million resulting from a smaller global temperature rise.

HPE has since taken these estimates to build resiliency into its operations, and is disclosing those steps. Here’s the full story.

In the muni bond market, these same risks are already being measured for investors by companies like risQ. risQ can provide investors with a measure of potential risk by CUSIP, which is remarkable detail.

For issuers, being proactive like HPE likely offers an opportunity to signal to investors and regulators that you’re taking this real risk seriously, and that you're taking steps to measure and disclose the potential impacts. Multiple ESG elements can blend into these materials that more investors are asking for.

Larger institutional investors have been vocal about their desire to see climate risk disclosed for some time now. Here’s an earlier story from the Wall Street Journal that covers how Ben Watkins, Director of the State of Florida’s Division of Bond Finance, went on a listening tour to hear for himself what types of data bond investors would be interested in.

There’s a saying in the oil exploration industry - “Oil is where you find it, but first you have to find it” – that I think is apt for issuers as they consider their financing needs in 2021. Large pools of new capital were actively buying in the municipal market in 2020, namely, new taxable investors. To tap into this new demand this year, issuers need to understand where to look, what’s needed to tap it well, and the immense value they can extract from doing so.

According to Bloomberg, state and local governments issued about $457 billion in 2020, largely driven by a sharp jump in the sale of taxable bonds. Of that amount, issuers sold $140 billion of taxable municipals, more than double the amount sold in 2019. That massive increase in taxable supply, coupled with ultra-low interest rates in other fixed-income markets, led to a swell of demand from both cross-over domestic taxable buyers as well as non-traditional, international investors. The outlook for 2021 from several Wall Street banks forecasts for even greater taxable supply in 2021.

For issuers, this is a huge development: there is now new demand willing to invest in taxable paper used to advance refund higher-coupon tax-exempt bonds. John Loffredo of MacKay Shields, one of the biggest tax-exempt and taxable buyers in the muni market, didn’t mince words when he spoke at BondLink’s IR Leadership Conference in 2020. For large issuers, pivoting your bond program to focus on this demand is more than just an opportunity, it’s really more like a necessity.

Three ideas came out of that interview with John:

1. Issuers should start by reviewing their list of existing tax-exempt investors to inquire if they also maintain a taxable desk. Knowing your current holders is always key, and this is one of the simplest ways to discover new opportunities.
2. A significant portion of international demand has mandates and incentives to invest in bonds designated as sustainable or to be used to create environmental benefits. If your bond sale is too small to be considered of benchmark size, a good way to still draw taxable demand is to go the extra step to create a sustainable offering.
3. Taxable buyers are not set up to undertake muni issuer credit surveillance. Proactive issuers in #muniland should take steps to ensure they are set up like corporate issuers: prioritize stronger transparency with regular investor communications, more accessible data, and a dedicated investor relations website.

This last point is critical for any large issuer hoping to tap new taxable demand as efficiently as possible. Tax-exempt issuers would do well to signal that future credit surveillance will be efficient for these new buyers.

How? Set up a dedicated IR website that centralizes all of your financial and other credit information that a buyer will benefit from in addition to disclosure filings on the MSRB’s EMMA website.

Here’s the link to the full interview if you’re interested in hearing Lofreddo’s perspective.

In the $4 trillion municipal bond market, all of the market’s activity stems from the individual finance officers and public sector CFO’s who ‘man the conn’ for the 60,000 governments/nonprofits that issue bonds. It’s a difficult job issuing bonds, especially given the large public sums at stake and the lack of resources available on the government side of the table.

Despite the abundance of technology that’s available to other market participants, however, issuers who arguably need it more lack access to similar advancements. And that’s where BondLink fits in: our mission is to provide the software issuers need to leverage technology in order to reduce costs and increase efficiency in managing their bond programs.

Today, we are excited to announce a major new expansion of those tools: we developed a new market data Dashboard that directly connects our issuer-clients to the critical bond market information necessary to gauge and understand market trends & conditions.

This includes a new collaboration with ICE Data Services, which is part of Intercontinental Exchange. Its daily interest rate curve is transaction-driven using large-sized trades reported to the MSRB. By relying on actual trade data, it gives our issuer-clients a better, truer read of market levels. The ICE curve joins other data sets, including the Market Conditions Index (from an issuer’s perspective) from Municipal Market Analytics (MMA).

This new tool adds to BondLink’s existing functionality, including investor intelligence & analytics, compliance solutions, and deal preparation. We’re proud that we can offer the bond market’s only all-in-one solution for issuers, whether they are in the market issuing bonds or not. We’re also excited to expand our partnership network with a data-driven leader within fixed-income in ICE Data Services. Along with MMA, we’re giving our issuer-clients advantages in many ways by working directly with leading participants like Ipreo by IHS Markit and Fidelity Investments. I encourage every issuer to have an open mind when exploring just how much our solutions and networks can help them. 

The issuer experience is complex, and we have a long way to go. But it’s the area of the bond market where technology can provide the biggest lift, and I’m excited to continue strengthening our platform to serve the industry that connects us all.

You can read even more about our latest collaboration with ICE Data Services on The Bond Buyer.

Next week, the Massachusetts School Building Authority (MSBA) expects to issue approximately $1.4 billion in tax-exempt and taxable bonds, which will be one of the largest bond sales it has undertaken in years. The MSBA provides grants to cities and towns to fund the construction and repair of school facilities across the Commonwealth, and its success in administrating such a big program — funding multiple thousands of school projects — is a model to other states.

The most notable aspect of next week’s sale, however, is not its size. 

The MSBA is designating the offerings as “Social Bonds”, and may be the first of its kind in the municipal bond market. This follows what the Commonwealth did in 2013, issuing MuniLand’s first Green Bonds (“Massachusetts Goes ‘Green’”, Wall Street Journal).  

Like Green Bonds, Social Bonds aim to finance projects with an identified social objective. For the MSBA, it’s ensuring “inclusive and equitable quality education and promoting learning opportunities for all”, according to its preliminary official statement. It intends to follow the guidelines for Social Bonds developed by the International Capital Market Association (or ICMA), 

As we heard from Ashton Goodfield and James Dearborn of DWS on our latest Expert Series Webinar, investing using an ESG focus is growing in importance for both institutional and retail investors. More investors want to know where their investment dollars are going, and thus want to focus on supporting programs and projects they care more deeply about. Funding new schools provides clear social benefits.

MSBA’s Social Bonds are an important “next step” by issuers to connect investors more closely to the projects being funded, and I suspect a successful financing next week could pave the way for a large number of other municipal issuers to also issue Social Bonds. 

I think it will see demand from a large array of new buyers, including from investors outside the U.S. In fact, as an indication of potential global demand, the MSBA’s prospectus includes notices to potential investors in the E.U., U.K., Hong Kong, Switzerland, the Republic of China (Taiwan), and Japan.

For more information on the MSBA and its upcoming bond sale, please visit www.MSBABonds.com. 

It is vital to speak these three words: 

Black lives matter.

We at BondLink are outraged at the murder of George Floyd by the police. We mourn his death, just as we do for the countless other Black lives that have been taken. These killings are not isolated. They are enabled by systemic racism and patterns of police brutality that threaten the lives of Black people throughout this country. We stand with the protestors who are demanding accountability and reform to end these injustices, and we denounce white supremacy in all its forms. We cannot be silent, as silence only enables the continuation of a system that perpetuates violence and racial injustice.

At our core, BondLink’s mission is to help municipalities invest more directly into their communities, and we believe that supporting our communities means taking actions to uplift people of color. We recognize the urgency of fighting for black lives and ending police brutality, so we are making a donation to Black Lives Matter, as well as matching any employee donations to organizations that are fighting against racial injustice and police brutality. 

We know we must also challenge our ways of thinking and examine how we work together at BondLink so that we are actively engaged in the battle against systemic racism. The less-overt instances of racial injustice around us can often seem invisible, particularly to those among us who are not people of color, but it is our duty to look closer and do the hard work of confronting these issues and committing to be better.

We at BondLink hope that this is a time for lasting change. We stand with those fighting for racial justice. 

Black lives matter.

— Colin MacNaught, CEO & Co-Founder, and Carl Query, CTO & Co-Founder

The National Investor Relations Institute (NIRI), the largest professional investor relations association in the world, recently hosted a webinar on “Maintaining an Effective IR Program through the COVID-19 Pandemic". While its focus was from a perspective of corporate IR practitioners at some of the largest companies in the world like Ford Motor Company, there are many useful direct parallels for muni issuers navigating through this environment. Whether or not you have a bond sale on the horizon, these are some important takeaways.

Identify your pressure points. Investors may need some hand holding as they review your credit and get their arms around the impacts of this crisis on your bonds. In the near term, as we struggle through an unprecedented drop in economic activity, cash flow and liquidity will be their focus. Be proactive and responsive to these concerns with frequent updates on both the revenue- and expense-side impacts to your operations.

Be the calming force. We are in uncharted waters and it is critically important to stay in touch with investors. This is a time to show your organization’s good governance and leadership. While cash flow and liquidity may be the immediate concern for investors, you also need to show investors the bridge to the future through both the actions you are taking and the actions you can take to weather the storm. Showing a path forward and highlighting your longer term strategy should be a part of the messaging from your organization as you progress through this crisis.

Bulk up your IR website. Now more than ever, electronic delivery of information is essential to ensure timely communication. As decisions are being made and new information becomes known within your organization be sure to clearly communicate it and make sure information is easy to find on your website. Virtual roadshows, conference calls and leveraging social media are useful tools for communicating relevant information to both existing and prospective investors.

A lot will continue to change throughout this crisis. One thing that can remain constant is your commitment to keeping investors engaged so your municipality can overcome these obstacles and maintain stable financial operations moving forward. Municipal market issuers, will no doubt, rise to the challenges facing them.

On Monday, SEC Chairman Jay Clayton and Office of Municipal Securities Director Rebecca Olsen took the unusual step of releasing a Public Statement to ‘request’ that municipal issuers share as much current financial information with bond investors as possible. The statement’s timing is critical: while COVID-19 will undoubtedly lead to significant credit deterioration for most issuers across the country, existing disclosure requirements would likely lead to a big lag in reporting on the extent of the impact. That’s not good for investors, nor the market in general, and the SEC rightly moved fast to offer issuers a solution.

Knowing how badly disclosure around COVID impacts could lag, the SEC’s Statement included important guidance on how to report on current data and examples of data that may be helpful to the market. It also encouraged issuers to share future projections and the assumptions underpinning those projections. While it made clear it cannot provide safe harbors, it did give issuers comfort in saying that good faith attempts in sharing interim data would not likely be second-guessed.

This is extraordinary. Not only the quick reaction of the SEC and the parallel guidance given to corporate CFOs as well as to public sector CFOs, but it’s providing actionable guidance to issuers on how to move the market forward in terms of real-time transparency. I think the vast majority of issuers are open to the idea of sharing more data with investors – since they are already collecting it and reporting on it to taxpayers. But guidance like this has been lacking, which has held the market back. Let’s hope this Statement – triggered by COVID – leads to a change of behavior and a big boost in data transparency.

Most issuers in the municipal bond market don’t have the luxury to postpone an expected bond sale indefinitely just because market conditions turn negative. For smaller issuers who issue bonds once per year, sales require a significant amount of time in planning and documentation. Other issuers may be borrowing to reimburse themselves for initial funding of a public infrastructure project.

Knowing that you have to come to market during a period of reduced liquidity, reduced investor demand, and yields trending higher, here are some steps that you can take to make to give your sale the best chance to succeed:

Communicate. Being transparent & accessible during periods of market stress is an important best practice. Working with counsel and advisors, issuers should develop a comprehensive plan to communicate with the market.

Uncertainty around the credit impact of coronavirus is top-of-mind for most investors. Issuers should use conference calls and roadshows to share how you’re measuring the economic impact of current events, how you’re addressing the financial effects, and when you expect to deliver more updates in the future.

Leverage Up-to-Date Data. We’re now in a period of remote work, which could extend for weeks or months. Like issuers, investors will be remote and laser focused on credit given the uncertainty over coronavirus. Make sure you provide as much recent public data and information  as possible on your IR website or through voluntary filings to the MSRB’s EMMA website. This commitment to speed and thoroughness can help you earn the investor confidence that issuers are seeking in an uncertain time.

Plan Ahead. If you expect to be in the market soon, let investors know about your bond sale earlier than usual. With cash leaving the market after 60 consecutive weeks of inflows, investors are going to be much more selective. Don’t cut corners – get your POS released early, do a virtual investor roadshow or investor conference call, and be accessible to take questions or suggestions on preferred bond structures.

MuniLand abruptly pivoted to a buyer’s market from an issuer’s market in the past two weeks. Issuers can still access the market successfully. But to do so, they should take steps to reduce the uncertainty that’s currently driving investor decisions.

When pressure on the muni bond market’s secondary market eases and the primary market re-opens for new-issue bonds, issuers in every sector will be facing a stark new reality: significantly higher interest rates, wider credit spreads, and credit reviews by rating agencies looming on the horizon.

Transparency, access to information, and the ability to communicate with key officials and staff are all paramount to manage a bond program as efficiently as possible in this new environment. With that in mind, issuers should take advantage of these three tools:

Dedicated Investor Websites: With all market professionals working remotely for the foreseeable future, consistently providing up-to-date interim financial information like monthly revenue collections or budget updates via an investor website is really critical. It will reduce uncertainty for investors in both the primary and secondary markets, and provide much-needed confidence that a steady stream of current data will be easily accessible in the future. These websites should be free and open to institutional investors as well as non-traditional and retail buyers. Disclosing your information once in a single location will also decrease administrative stress on your team, allowing you to focus on more strategic initiatives throughout the issuing process.

Investor Calls & Virtual Roadshows: The more progressive issuers in the muni market will follow best practices undertaken by corporate leaders over the last few weeks by speaking to investors as soon as data on the coronavirus’ credit impact starts to become available. This can include live conference calls or recorded, virtual roadshows – both are valued channels of communication for bond investors. An issuer can conduct calls on a regular basis – say, monthly or quarterly with key staff – which is another way of reducing the uncertainty gaps for the market. I also think that, in this environment, it would be very beneficial to include top officials like governors, treasurers, and mayors in these communications. Adding the support of these major officials has the power to reassure investors and signal they’re a top priority.

Streamlined Distribution Tools: Updates to the MSRB’s EMMA website are critical, and under certain circumstances, legally required. All issuers should work with their counsel to identify required updates to be made to EMMA while also looking for opportunities to make voluntary filings to EMMA as often as possible. To do this seamlessly, use technology that allows simultaneous posting of documents to an investor website as well as the compliance repository.

The lowest cost of capital is always going to flow to those issuers who provide current data to investors. In a challenging credit environment, this is going to be even more true. Using the tools and channels outlined above to share data will help ameliorate the pain of higher rates and wider spreads.

For more than a year now, issuers in the muni bond market have experienced a steady decline in interest rates and weekly reports of cash pouring into the market. Rates seemed to go lower every day, and changes to the federal tax code set expectations that investor demand would be steady for the foreseeable future. When 10-year rates sunk below 1% less than two weeks ago, market professionals were describing conditions as “free money” for issuers.

The period of issuer bliss has quickly been interrupted. Last week, Lipper reported the first outflow of investor cash from the muni market in over a year, breaking a string of 60 consecutive weeks of inflows. Trouble in the corporate bond market spilled into munis. While credit spreads had already begun to widen, yields on tax-exempt bonds have sharply corrected to higher levels this week. The financial press has reported that some pricings have been postponed and others downsized.

The driver, of course, is the coronavirus, with investors in all markets concerned about their investments in businesses and economies. The Wall Street Journal wrote a story on the potential impact for certain muni issuers.

I’m not a lawyer and I’m not offering legal advice in this blog. But when the market’s liquidity has been interrupted, as seems to have occurred this week, my instinct as a former issuer would be to communicate proactively with my investors. It’s good customer service, and good investor relations. Here are some thoughts:

• All issuers should consult with bond counsel on the legal requirements around disclosure driven by the effects of the coronavirus. These requirements will be different depending on whether you are in an underwriting period of issuing bonds or not;

• If you’re not in the market, even if there are no 15c2-12 requirements to disclose right now, it’s good investor relations in our opinion to communicate with investors. Let them know how you may be impacted, what you’re doing, what you’re measuring, and give them confidence that they will hear from you as this period of uncertainty extends;

• All businesses in the U.S. have quickly become remote because of the coronavirus, making electronic channels of communication central to efficient operations. Investor conference calls or roadshows are good channels to use to update the market, especially as in-person investor meetings and conferences are canceled;

• This period will place an emphasis on issuer-to-investor connectivity. If investors continue to migrate to corporate bonds and dividend yielding stocks over munis, outflows will continue to be negative, which will force investors to be much more selective of the bonds they are willing to buy. Easy access to issuer data in this environment will become more valuable to investors, so issuers should look for opportunities to share more timely information on their investor websites or on EMMA; and

• This period of remote communication may become the new normal, especially if the coronavirus’s impact on the bond market continues for some length of time. Issuers who are quick to adapt to using electronic channels like websites for sharing data, as well as conference calls and roadshows, will be preferred by investors.

Our view at BondLink is that over the long-term, capital will flow more efficiently to issuers who are transparent, communicate with investors, and make their data easier to access using electronic channels.

This becomes much more important in the short-term whenever the market becomes illiquid and investors are under stress as they try to assess the impact of the coronavirus on their muni investments. What would I do as an issuer? I would look for ways to minimize that stress and reduce the uncertainty: more transparency and more communication.

More #MuniLand issuers than ever are communicating directly with buyers through investor relations (IR) websites and attracting stronger demand as a result. We believe this is a great step forward, and we’re confident it’s improving transparency and efficiency in our market.

As more investors continue to consume information through these digital channels though, it’s important to recognize that issuers are no longer only competing with other securities. They’re now battling for investor attention that’s dominated by news sites, social media channels, and countless other distractions on the internet. 

That’s why we’ve put special attention toward finding ways to engage with investors when they’re signaling an incredible amount of purchase intent on muni-specific websites. We’ll admit, it hasn’t been easy, but the results are very promising.

Back in April, we proudly announced our research collaboration with Fidelity Investments. Fidelity is an incredible investment management company whose platform allows individual investors to place orders for municipal bonds in either the primary market or the secondary. Our collaboration gives retail investors using Fidelity direct access to data and financial information for the issuers who use a BondLink platform. Here is a link to the blog about this, and a story from The Bond Buyer.

Last month, we announced another data collaboration with Ipreo by IHS Markit. Like Fidelity, Ipreo is an incredible company that provides the order management system for institutional investors to place orders for new-issue bonds being sold in the municipal bond market. Working together, Ipreo and BondLink now provide these investors with one-click access to issuer financial data when they are accessing the Ipreo platform to place an order for bonds. 

The integration has only been active for a month but the feedback from investors is all very positive. Using our technology, we’re efficiently providing more information to investors at the very point of purchase so they can better understand the credits and the issuers they are considering investing in. 

Taken together, the collaborations we’ve created with Fidelity and Ipreo demonstrate how we’re leveraging technology to help our issuers stand out in a very crowded and fragmented bond market - with both institutional investors and individuals. Here’s a link to the story from The Bond Buyer.

We have even more collaborations in the works, so stay tuned for additional updates on those!

There’s lots to unpack over the next few weeks, so here it goes…

Back in mid-September, we hosted our annual IR Leadership Conference in Boston, the only event in #MuniLand focused exclusively on best practices around investor outreach. This is our opportunity each year to facilitate the direct engagement between issuers and bond investors, and to spur dialogue on timely issues that are impacting the bond market. 

For our 2018 event, we focused on core IR best practices, including some legal and regulatory panels as well as practical advice from corporate IR professionals. The speakers reflected that focus, and included Rebecca Olson from the Securities and Exchange Commission, Nixon Peabody bond attorney Dan Deaton, and Vertex Pharmaceuticals’ VP for IR Michael Partridge. 

For 2019, we moved the IR conversation a little more downstream. For example, Tom Vales of TMCBonds/ICE and Richard Carter of Fidelity Investments spoke about the growing importance of electronic trading in the municipal bond market. We dug into the criteria development process for factors like issuer transparency with the heads of public finance at S&P, Moody’s and Kroll Ratings. The event was capped with an issuer-investor roundtable discussion on the growing importance of ESG, with the dialogue led by Breckinridge’s Adam Stern, Fundamental Advisors’ Hector Negroni, and MarketAxess’ Steve Winterstein. 

We packed a lot into a single day but the open dialogue and practical feedback from investors was excellent. Our issuers left the event armed with actionable tips to help their bond programs stand out to investors. 

Here a few notable takeaways from the 2019 summit:

• Electronic trading in fixed income generally is rapidly approaching the levels seen in equities, and #MuniLand is no exception. Over the course of 2017 & 2018, of the $1 trillion in par of municipal securities traded in inter-dealer trades, 29% were executed on an ATS. A lot of these trades are happening in the secondary market, but the primary market is also relevant with retail platforms like Fidelity.com and Schwab.com. There are clear steps issuers can take to ensure their bond sale is set-up better to do well when it comes to electronic trading. We’ll have some follow-up to this in the coming weeks; and

• ESG has quickly become a big deal with investors.This is the logical evolution of the “Green Bond” movement, and it continues to gain importance with buyers. Our investor panel on this topic highlighted the importance of issuers capturing ESG in their disclosure, and using technology to provide photos, project updates, and environmental impacts of key projects.

We also used the 2019 conference to announce a number of exciting developments, including new product features and partnerships. We’ll focus on those in more follow-up posts to the Fisc, so stay tuned in the coming weeks!

You may have seen last week’s article about our new integration with Fidelity Investments®. It was also a featured story in The Bond Buyer and other publications. We’ve been working on this for some time with Fidelity and we’re very excited to bring it to market. Together, BondLink and Fidelity are seeking to stregthen muni bond research for retail investors.

As you know, BondLink’s mission is to help issuers engage more investors in the $4 trillion municipal bond market. The formula is to combine enhanced transparency packaged with cutting-edge technology. We recognize the buy-side in MuniLand is not monolithic: it includes various types and sizes of institutional investors, as well as non-traditional investors like retail investors.

It’s a lot easier for BondLink to help our issuer-clients engage more with institutional investors, though. We know who they are, what they hold as investments, and have established paths to communicate with them. Retail is much more difficult. That’s why our integration with Fidelity is so important for issuers, and frankly, for the broader municipal bond market’s evolution.

Despite being such a large investor in the muni bond market, individual investors typically don’t have easy access to issuer information, and don’t have sophisticated tools/analytics and dedicated research teams that institutions do to help evaluate investment decisions. And researching a governmental issuer can be extremely challenging without these resources, especially if it needs to be done quickly and efficiently.

Our goal with the integration is to help empower this very important class of individual investors in the primary market. Now, Fidelity Investments®’ millions of retail investors can access BondLink’s aggregation of issuer data on Fidelity.com. Easier access to issuer information will allow for more research by retail investors, including the ability to select bonds based on the types of infrastructure projects being funded or the issuer’s overall level of transparency.

Every single one of our issuer-clients wants to find new paths to reach retail. They also know to reach more retail investors today, you must meet them where they are: online. Retail investors use their mobile phones, tablets and computers. Now with BondLink and Fidelity, issuers have an easy way to activate the power of the internet to enhance their bond sales.

Fidelity has long been a pioneering leader in enabling retail investors through technology and research. As one of the first firms to enable individuals to buy bonds online, we couldn’t be more excited to work with Fidelity to launch this first-of-its-kind capability. And with BondLink’s issuers’ commitment to transparency, this new agreement will help unlock more demand for their bonds from individual retail investors.

We’re excited to open up this new tool for issuers to reach more retail investors, and to be delivering it with an industry thought and technology leader like Fidelity Investments®. As one of our BondLink clients, Michael Gaughan of the Vermont Municipal Bond Bank said in a recent article, “Giving more individual investors better access to information is always a good thing for this market.”

Two common traits of the municipal bond market are its size and fragmentation. It also maintains a high volume of muni bond selling in the new-issue market, often called the primary market. The last five years of market data show that every week, on average, there are more than 200 new bond sales representing more than $7 billion in par amount of bonds – more than $1 billion a day.

Keeping up with this volume is increasingly difficult for analysts, who usually cover dozens of credits. This is why, for years, bond investors have recommended to issuers that they provide longer notice for an upcoming bond sale.

Generally, issuers provide notice of a bond sale with the publication of the preliminary official statement (POS), often about a week before the financing. 

For the first time, BondLink has measured the level of investor interest generated with a typical 7-day notice of an upcoming bond sale and quantified the benefit of providing earlier notice to the bond market.

This analysis is the first of its kind, and we will be releasing these new insights later this week. We’re excited to share the results with our community as the benefits to issuers, in the form of greater investor interest and engagement, are significant.

We’ll also continue to share more insights this year about the impact of stronger investor relations in the municipal industry.

“The Dead Zone” is an excellent book written by Stephen King that was adapted into a movie in the early 1980’s. During my time on the issuer side, the title of this book (and movie) occurred to me often when I was about to launch a public bond sale.

I’m convinced that I was not alone in thinking of this phrase as a future bond sale goes on the radar screen. I think most issuers in the bond market are explicitly or implicitly aware of the anxious period of time when you know you are about to issue bonds, but no one in the bond market – or at least no one on the buy-side – is aware of the upcoming sale. The POS or NOS is not yet public and bond ratings are not back from the rating agencies’ meaning the underwriter you’ve chosen can’t release a wire announcing the sale. So, what happens? Generally speaking, nothing happens. Nothing. In their own minds, the issuer is on the clock. They start really focusing on market conditions. But no matter the level of preparation, the issuer knows they are taking market risk everyday: the risk is that new-issue supply will build and interest rates will significantly move higher as the financing date approaches.

In talking with other issuers around the country, it’s standard practice for bond sales to be approved internally two or three months (or more) in advance of the actual sale. The public announcement of the sale typically occurs with the release of the POS, however, which in most situations occurs only about a week prior to the sale.

Issuers always have flexibility to move dates around for a future financing, but in reality they are actually pretty limited. Too many steps have to occur in sequence on the issuer side – like lining up a bond counsel, preparing a POS, updating disclosure, etc. – that makes it difficult to indiscriminately move a sale date around on the calendar. Generally, when a decision to issue bonds has been made, issuers target a certain week on the calendar when they are expecting to price. The sale might slide sooner or later by a week, but typically not by more. Another consideration that also could bind issuers: often-times bonds are issued to reimburse the government for capital spending that has already occurred. This means that bond proceeds are really needed. For all of these reasons, issuers can be locked in to their sale dates months in advance of the sale.

You are locked in as the issuer, taking market risk every day, yet it’s too early for the underwriting team to market the bonds. This period is the Issuer Dead Zone.

Based on feedback from bond investors, however, it’s also a missed opportunity to stand out as an issuer. Consider the average weekly volume of bonds sold (by par) in the primary and number of transactions over the last five years: over $7.5 billion in 226 different transactions per week. It’s a firehose of bond sale activity. The solution is to market your own bond sale.

Issuers can avoid the so-called Dead Zone by announcing their own bond sale via press release and on their investor website as soon as the bond sale is authorized. Even if the exact dates or even the exact week of the sale has not yet been identified, issuers can signal to the market that they expect to issue bonds in a future month or in a future fiscal quarter (with a caveat like ‘subject to change’). By announcing the sale publicly and well in advance, an issuer raises awareness of the sale for both traditional and non-traditional investors including local buyers. Non-traditional investors who are not plugged into the muni bond market calendar need to be aware of the sale and they need more time to prepare in order to make a decision to place an order for bonds.

For traditional investors, early announcement of the bond sale gives the credit analyst covering the issuer more time to dig into the details in order to complete a full evaluation. The more details he or she has as an analyst, the more comfortable they are in the credit (whether the story is good or bad). Comfort leads to larger and better orders in the primary market, and enhanced liquidity for similar bonds that may be available in the secondary market. For the portfolio manager, the early awareness of the bond sale allows them to prepare their portfolio – like freeing up cash – for the new-issue bonds.

For issuers, the best practice is this: don’t hide the ball. In fact, do the opposite and let the market know well in advance of the sale. Announcing the upcoming sale a week in advance with the release of a POS is not optimal for your investors. It’s your bond sale and you are responsible for the outcome: so avoid the Dead Zone and market the bonds yourself.

By the way, this is also point #6 on the list of 10 Muni IR Fundamentals – Communicate Your Bond sale. We’ll have more to say on this topic soon.

Happy 2019! Our blog is officially back after a brief break to close out 2018 and prep for this year. So many great things are coming, and we’ll keep you informed about it all here and on our podcast, which also returns this February.

Throughout 2019, we’ll continue to offer market commentary and analysis of the trends we think are important for issuers, advisors and investors. We also learned a TON last year about best practices and will continue to identify and share how these can be applied in MuniLand.

Today, we’re starting where we think we should start: with the fundamentals. The fundamentals of IR, that is. After spending a few years researching IR best practices, we’ve identified 10 competencies that every CFO or finance officer should develop as part of an effective IR program. The most important – and the one everyone should start with - is developing a strategic IR plan.

Investor relations is most effective when it’s a sustained program. Investors can choose from thousands of well-rated issuers and there are hundreds of new-issue sales every week. Developing a continuous IR program yields benefits – and you don’t get all the breakthroughs from one-off or disjointed IR activities like a single investor roadshow for one special bond sale.

Every issuer in the muni bond market must access capital for the next 50 or more years. IR strategies should reflect this long-term horizon. Issuers carry tremendous fiduciary responsibility and should always ask, “What steps can I take today to help ensure my municipality has access to low-cost capital in 5 years, 10 years or even 20 years?” Building a strategic IR plan will help you document these steps and see your progress.

We recommend issuers include their advisor and bankers in the process. Leverage the extended team to develop a strategy that helps achieve your long-term IR goals. Here are some great goals we’ve seen recently:

• Directly engage your largest bondholders
• Identify new institutional investors and a plan to reach them
• Find new ways to access non-traditional investors, such as local and retail investors

Overall, putting an IR plan and process in place will help you systematically expand and diversify your investor base. As the adage goes, “Plan your work and then work your plan”.

Top issuers who want to stand out in the bond market and have an edge over others should develop a written IR plan with goals, measure its effectiveness, and review and adjust it with their team at least once a year.

We’re excited to bring you much more on the 10 fundamentals and help you have an outstanding year. Stay tuned and here’s to a great 2019!

The first week of December was significant in MuniLand. In this week’s blog, I’ll cover the City of Detroit’s re-entry into the muni market. Next week, I’ll share my perspective as one of the panelists at the SEC’s conference, “The Road Ahead: Municipal Securities Disclosure In An Evolving Market.” First, about Detroit.

A decade after bankruptcy, the City of Detroit has returned to the bond market. The City issued two different bonds last week, one through the Michigan Finance Authority to restructure some of its outstanding debt for budget relief purposes; the other was a new-money bond secured solely by the City of Detroit’s own credit strength. This was the first time Detroit utilized its own credit structure in almost twenty years.

Since the bankruptcy, Detroit underwent a near-complete overhaul. The City has new leadership and started to balance its budget. This enabled its exit from state oversight and generated surpluses for the first time. These efforts were recognized with rating upgrades by both Moody’s and Standard & Poor’s. Detroit’s credit trend is definitely upward.

A key part of their overhaul was also deliberate and direct engagement of the buy-side, as other top municipal issuers undertake. Detroit’s finance team saw the need to go beyond buttressing the City’s credit, and to also rebuild the City’s investor relations. In general, investor relations is still something most issuers don’t invest enough time and effort into prior to a bond sale. For Detroit, their investor outreach efforts were rewarded.

Working with BondLink, the City launched a new dedicated investor relations website www.CityofDetroitBonds.com in August 2017 – well before it planned to issue new bonds. They worked with their peers in the Michigan State Treasurer’s Office to host an investor conference held at the Detroit airport several months before the sale. And, leading up to last week’s bond sales, they worked with their advisor team at Hilltop and underwriting team at Goldman Sachs to complete a series of investor meetings and roadshows.

So how did Detroit do? The City sold bonds at or below 5%, plus strong demand that allowed the City to upsize its transactions. In short, their results were incredible given where they were coming from as an issuer. Congratulations to Detroit and their entire team. The City’s sales last week were prime examples of the bond market signaling to an issuer it is on the right path.

In August of 2017, I wrote an op-ed in The Bond Buyer entitled “Issuers: Don’t Let the Rating Agencies Tell Your Story – Tell It Yourself”. This week’s Fisc commentary is a follow-on to that initial article, driven by an excellent story last week from Bloomberg reporter Amanda Albright.

Albright’s story highlights the risk to issuers who don’t engage investors directly but instead rely on the rating agencies to do so through their assessments. I encourage you to read her article.

Ratings are meant to translate all of an issuer’s characteristics at a single point in time into an assessment of relative risk based on their criteria. These can be very valuable for investors requiring a third-party assessment. When the criteria changes, however, as Albright’s article centers on, it can have major implications for issuers.

To wit, S&P just changed their evaluation model for priority lien debt, affecting the ratings of nearly $50 billion in outstanding bonds. Of the 1,300 issues S&P includes in this category, 85% are expected to receive a new rating, with 45% likely to rise or fall at least two notches.

Obviously, it is important to have the most accurate rating outstanding, and S&P should be applauded that it is responding to court rulings involving Puerto Rico debt. But multiple notch swings can, in fact, be disruptive to issuers and investors. Nothing fundamentally changed with the issuers themselves, simply the criteria of the third-party providing its assessment.

The key takeaway for issuers is to put as much focus on your investor engagement as your rating agency efforts prior to a bond sale. Ratings are important, but at the end of the day they are only a single data point for investors to use when making an investment decision. More and more investors will do their own credit assessment, but they need easy access to issuer data in order to do that.

I hope everyone had a very Happy Thanksgiving. For this week’s blog, here is a collection of thoughts on timely subjects:

2018 is coming to a close. There are only about three weeks left this year with a potentially meaningful supply of bonds. According to The Bond Buyer data, through the end of October, supply of bonds (by par) was down year-over-year by nearly $45 billion in 2018.

All of the forecasts we’ve seen for issuance in 2019 project between $350 billion and $375 billion to be issued. So more than 2018 but not as strong as 2017.

Conferences are winding down. This week, BondLink will be attending/participating in two conferences. The first is the Association of California Water Agencies Fall Conference & Exhibition in San Diego. Come see us at booth 706 if you’re there. We’ll also be attending the Massachusetts Investor Annual Investor Conference in Boston this Wednesday.

Also coming soon is the annual awards dinner hosted by The Bond Buyer. BondLink is proud to be associated with a number of honorees, including Wayne County, MI which was awarded the Midwest Regional Deal of the Year Award. This year’s Trailblazing Women in Public Finance includes Deborah Goldberg, Massachusetts State Treasurer and Chair of the Massachusetts School Building Authority; and Sarah Riordan, Executive Director and General Counsel of the Indianapolis Local Public Improvement Bond Bank.

Issuers continue to make news. The Bond Buyer’s Kyle Glazier had a great piece on Washington, D.C.’s new capital asset management system, which gives the District’s financial team and its Council the ability to drill down into its inventory of public infrastructure to determine its useful life and repair/replacement schedule. You can read our take on this from last week here.

Part of Washington, D.C.’s updated capital plan includes $2.3 billion for The Washington Metropolitan Area Transit Authority (or WMATA). WMATA itself is coming to the bond market this week, with plans to issue $245 million gross revenue transit bonds in a negotiation transaction led by Citigroup. For more info on the bond sale, visit www.WMATABonds.com.

Sticking with must-read articles, the Wall Street Journal wrote an insightful story on the rising costs of infrastructure investments for state and local governments due to higher material and labor costs. The article specifically points to the higher costs of steel, which is a critical building material for large public projects like bridge repair. The cost of borrowing for public infrastructure is also a factor, though not cited in the article. While long-term interest rates have backed down in the last week due to the sell-off in the stock market, they remain a significant source of volatility for finance directors planning their capital spending in 2018 and 2019.

You can also help us pick our “story of the year.” I’m collecting submissions for the top 2018 story in #muniland. Please send me your suggestion for the issue or topic that dominated our market in 2018. I look forward to hearing from you.

You’ve heard both me and our industry articulate the value of muni issuers taking their complete credit story directly to investors. In a nearly $4 trillion market with hundreds of weekly sales, it’s continuously critical for muni issuers to separate themselves from the crowd in order to gain investors’ attention and earn the best possible price on their bond sales.

Investors, after all, buy bonds. They can choose, or choose not, to invest in an ample inventory of sales every week, all year. Their selection criteria are usually a mix of their own priorities and credit requirements, market conditions, and the issuer’s level of transparency. It is especially with investor transparency that issuers can distinguish themselves.

An issuer who understands and takes advantage of this is Washington, D.C. A few weeks ago, D.C. published its 2018 Long-Range Capital Financial Plan Report. While D.C. is a BondLink client, I’m not sharing this with you to advertise for the District. D.C.’s report is its own organic initiative, and I wanted to highlight the report’s industry significance, benefits generated, and some related best practices that other issuers can easily adopt.

The report itself provides an ongoing and comprehensive status report for all projects. Both policy makers and investors need this information to assess risk and make decisions. We certainly see this in infrastructure projects, which is a critical government responsibility and major focus for both civil servants and investors.

Project funding requests don’t exist on their own; they are part of a larger financial picture that must be evaluated on the whole. D.C. knows this. It has also paired its annual report with a proprietary Capital Asset Replacement Scheduling System (CARSS), providing a one-stop view of all projects and the District’s overall capital asset health.

Delivering these reports (and the processes required to create them) is a strategic commitment. It’s not an incremental resource everyone will produce, and that’s always an opportunity.

While D.C. has created what’s best for the District and its taxpayers, the insights other issuers can draw from this lie in answering one question: “In what new ways or areas can I be creatively transparent?” This often brings its own rewards, here are some of D.C.’s positive results:

• 100% of all District assets inventoried and viewable (started at 14% when the report was first published in 2016)
• $2.3 billion in approved funding for Washington Metropolitan Area Transit Authority (WMATA) over 10 years
• $5.7 billion of unfunded capital needs identified and reduced to a new total of $3.3 billion through integrated planning
• All capital needs identified and funded through FY 2028 (this includes deferred maintenance, increased pay-as-you-go cash, plus additional borrowing capacity to refinance existing debt and remain on-hand for further economy growth support)
• An upgrade in the District’s bond rating by all three agencies, including Aaa by Moody’s

Public corporations spend a lot of effort and money on their annual reports to investors. This is partly to comply with financial regulation and mostly because they know it helps them gain an edge with investors when it’s executed well.

D.C.’s report is a good example for how all issuers can take the effort and money they spend on disclosure and rating agency meetings, repackage and innovate with it, and bring something new and useful to their community, government, citizens and investors. From the benefits achieved, I expect this will be a continuing trend and our muni industry will be better for it.

The big story in capital markets in October was volatility. It was a pretty choppy month – here are a just a sample of headlines that I noticed:

“Dow tumbles more than 200 points in wild session”

“Dow rallies more than 400 points in bounce”

“Yields dip as stocks dive”

“30-year Treasury Yield Hits more than 4-year High”

Those headlines introduced stories detailing significant moves for both the Dow Industrial and U.S. Treasuries, which are both used as benchmarks for equities and fixed income markets respectively.

The municipal bond market was not immune to this volatility. As we’ve mentioned before in prior blogs, issuers should be cautious about market conditions given the sell-off in long-term yields, the steepening of the yield curve, and investor net outflows. As supply ramps up for the annual end-of-year push, overall demand will be tested given the loss of key buyers on the long end because of changes to the tax code.

Over the course of my career, I’ve had to sell bonds amidst choppy market conditions many times. Trust me, it can be an unsettling experience. If waiting out the volatility is not an option for you as an issuer, it’s time to be laser focused on the fundamentals. Here are a few lessons I relied on to get through a difficult market.

1. Determine your flexibility. Recently, we’ve seen large offerings get downsized on pricing day or even pulled from the calendar. This is obviously a signal that market conditions are bad. But it’s also a signal of savy issuers who understand the flexibility of both their financing plans and their sale. It’s vital to work hand-in-hand with your financial advisor and banking team to determine your ideal size and structure that can be well-digested in the market while still meeting your capital needs. For example, perhaps the structure of the bonds can be adjusted so that you only offer on the short and long ends and reduce bonds in the belly of the curve until another time. If the appetite is there and it works with your debt-service profile, great!
2. Gather your intelligence. This is where having a superior IR program makes your job as an issuer a lot easier. You need to reach out to your underwriters – and investors if possible – to see if anyone can alert you to red flags. Bankers, traders and analysts can have their fingers on the pulse of the buy-side and can let you know sectors/regions/ratings/coupons that are seeing little (or strong) demand. This type of market intelligence can be hugely beneficial, especially if you have some flexibility. Perhaps no one’s interested in 4% coupons right now, but you have the flexibility to set a 5-1/4%. Maybe that pulls in the additional buyers you need. And talk to other issuers as well. This is a community, and your fellow issuers can be a great resource. Get firsthand details on issue pricing from peers who just dealt with it.
3. Develop your game plan. As they say, plan your work and then your plan. Did your intel suggest re-structuring your deal? Based on the results of points #1 and #2, determine if you have the flexibility to make adjustments. Figure out what you need to sell; find out what you can sell; and then take it to market. There are great deals to be made even in the most difficult of markets. And remember, sometimes waiting is just not the answer, especially in a rising-rate environment.

We’ve seen some huge uncertainly in the markets recently. Having to borrow in this kind of environment just further underscores the importance of being proactive as an issuer. Talk to investors, and work with your advisor and banker to access the necessary capital in the most efficient manner.

The Bond Buyer last week ran a very interesting series of stories reflecting on the events and market changes that have occurred over the past ten years since the global financial crisis. Each story in the series reflected on a different issue or topic, and I highly recommend market participants find the time to read them.

One, in particular, is critical for issuers to digest: Robert Slavin’s article of the changing role of the rating agencies. This is a must-read in #muniland and you can click here for the article.

Slavin notes that most bonds issued in the municipal bond market continue to be rated, with S&P and Moody’s assigning about 92% of them. That’s not a big surprise, as I think ratings – like online product reviews – are never going away. A third-party opinion of a security is still a valuable part of any investor’s evaluation process. Fitch and Kroll also continue to provide ratings to a larger and larger share of the market.

The key take-away, however, is the role ratings now play in the evaluation process. Again, quoting from the article:

“The rating agencies are better than they were before the financial crisis,” said Marylin Cohen, president of Envision Capital Management. “But we use the ratings as suggestions and not the Holy Grail.”

Suggestions and not the Holy Grail. This is the same perspective we hear every day in our discussions with institutional investors of all sizes.

At the Association of Public Treasurer’s conference held in Memphis in July 2018, I was joined on a panel by Vanguard’s Akiko Mitsui. We discussed what investors need and prefer from issuers prior to a bond sale. She stressed that more investors than ever before undertake their own credit analysis of bonds. As such, issuers would benefit if they shared more current information with investors sooner in the pre-bond sale process.

From experience, I know that most issuers leading up  to a bond sale spend nearly all of their time and effort focused on the rating agencies. They spend little to no attention focused on bond investors, even though investors – and not rating agencies – are the ones who will actually purchase bonds and lend them the necessary capital to finance their infrastructure. That is a big miscalculation, and Slavin’s article illustrates this market perspective is ten years out of date. For all muni issuers reading this, what’s your plan to reach more investors directly?

Municipal issuers benefit greatly when they connect to and engage with bond investors. Investors always appreciate it when they can find the most current information quickly. Having and executing a superior investor relations (IR) strategy is key to helping issuers deliver this information easily to investors. And in today’s busy and crowded (thus, competitive) muni market, getting this right can help issuers gain an edge when taking their bonds to market.

BondLink has touted the vast benefits to municipal issuers of a dedicated investor relations website to connect and engage bond investors. The BondLink platform makes many of the best practices from the corporate and equity markets instantly accessible to muni issuers. And we’re still just getting started.

We recently released a trio of enhancements to our market-leading platform, and they’re already gaining traction among our clients. One of these important new capabilities is Digital Roadshows.

How much do you spend on roadshows when you come to market? What if you could put that money back to work in your community instead?

At NO EXTRA COST to BondLink clients, our client issuers can work with our customer success team to develop slides, record voice-over and host investor presentations directly on your BondLink-powered IR site. This brings your presentations right to the people – the investor community – where it can make an impact! Plus the dollars you would traditionally spend with typical vendors for a roadshow can redeployed to other areas.

Part of my role here at BondLink, as I’m based on the West Coast, is to attend industry events – such as the recent Washington State GFOA conference. As a former issuer, I truly understand the difficulty many leaders face coming to market and attracting the highest numbers of buyers to achieve the lowest borrowing costs.

In the numerous conversations I had at the conference, I was amazed to discover that issuers simply are skipping the step of providing a roadshow for investors. “The costs are too high” or “we don’t see the value” kept coming up as rationale. Yet, most of these issuers who weren’t producing a roadshow, were producing agency presentations. Quite literally, the information is already put together; it just needs to be formatted for the investor!

It became clear that there a remains a belief that the deal’s credit rating is the end-all, be-all for a successful bond sale. Our point is, if you’re putting this together for the agencies, why not offer it up to the investor community? Fundamentally, it’s all public information. Why is it OK to share with ratings agencies, yet not with the people who will actually be buying your debt?

Investors presentations are an invaluable opportunity to tell the buy-side the complete story of your credit, your deal and your projects. It’s extremely prevalent on the corporate side, and in my experience, a terrific way to broaden and diversify your investor base. And now with BondLink, you can get all the value of a roadshow without any additional cost to your community.

As we’ve seen in the sales calendar the last couple weeks, deals of all shapes and sizes – and ratings – are available to investors. Issuers need to find a way to stand out from the crowd. Your BondLink-powered IR website is a great first step. Now let’s turn your agency presentation into an informative investor roadshow, and host it right on your dedicated site. You know how to tell your story, and now you can take it right to your investors as well.

As many of you know, last week we hosted the Municipal Finance Leadership Summit 2018, an event that was truly unlike any the industry has seen.

The entire leadership summit was geared towards investor relations, a topic that is significantly undervalued in our market. And like everything we do here at BondLink, the objective was to empower issuers with information and tools to help them more efficiently access the capital markets. Issuers participated in numerous roundtables with investors and other leaders from around the market.

For example, Tom Paolicelli, who as an issuer for New York City Municipal Water Finance Authority hosted as well as attended numerous investor events, moderated a panel with Brandeis finance professor Dr. Dan Bergstresser and the World Bank’s Urvi Mehta to discuss the expanding investor base for Green Bonds, with a focus on post-financing impact reporting.

Director of the SEC’s Office of Municipal Securities (or OMS), Rebecca Olsen, delivered a keynote address outlining OMS’ focus on transparency and market integrity, including announcing its first Disclosure conference to be hosted in December at its headquarters in Washington, DC. Capping the Summit’s coverage on oversight and legal issues, bond attorney Dan Deaton, a partner with Nixon Peabody, detailed a clear legal framework for issuers in terms of their communication with investors.

BondLink CEO Colin MacNaught led a lengthy Q&A session with two VP’s of investor relations for Fortune 500 companies. BondLink’s Director of Marketing Dave Lewis took issuers on a tour of the marketing world and presented ideas on how to employ marketing strategies to bond sales. John Murphy worked with Fidelity’s Jae Chung to help issuers in the audience better understand what investors wants from issuers, both at the time of a bond sale and in between offerings. I had the pleasure of moderating a panel on how issuers can best work with the financial press and was joined by John Hallacy of The Bond Buyer and Cate Long of Puerto Rico Clearinghouse.

“So many of the topics that were presented simply never come up at other industry events,” Tom and Murph explained to me. “And they really go to the heart of how to improve bond sales – and ultimately optimize borrowing costs.”

More than the presentations themselves, attendees enjoyed an interactive discussion with the speakers, engendering an energetic, engaged and educated audience.

Here’s an example of the feedback we received on the event. Be sure to check out the latest episode of our podcast, MuniLand, to hear more.

• Vanguard’s Akiko Mitsui: "A variety of different perspectives on disclosure in the marketplace. From the Compliance Disclosure about green bonds, to the way that public companies view disclosure and investor relations, to some of the legal issues affecting the municipal marketplace disclosure, all of these differing perspectives together have really made me think it really was a fantastic event."

And that’s just a sampling. If you couldn’t be there, we’re already prepping for Municipal Finance Leadership Summit 2019. You won’t want to miss it again.

One of the core tenets of our work at BondLink is to empower issuers in the municipal bond market to do more in order to optimize their bond financing programs. “Doing more” includes things like being as transparent as possible with investors through the dissemination of timely data, making that data as accessible as possible through a dedicated investor website, providing greater access to bond sales to non-traditional investors like retail, and incorporating analytics to better understand trends on the buy-side.

Since going live in November 2016, we have built an incredible network of highly sophisticated issuer-clients who are eager to provide efficiency gains to investors as a way to stand out in a very crowded bond market. These issuers are located all across the market, from states to utilities, universities, school districts, counties, cities and towns. Some of our clients are large and frequent issuers, others are small and infrequent. Some have three AAA ratings, while others are underrated or even unrated.

Despite the difference in size, sector and credit quality of our clients, the common denominator of each of these issuers is the superior individual finance officers responsible for their respective bond programs. They are “leaning in” to the tools provided by BondLink because they want to lead the market and price their bonds are efficiently as possible, and they know there are sizable returns over time to an investment in greater investor outreach.

We do everything we can to help distinguish our issuer-clients to bond investors, and this week includes two big investments on our end to further that objective. On Wednesday, Oct. 10, we will be hosting our inaugural leadership summit focused on IR best practices. This event was created to provide a forum for issuers and investors to discuss issues that are rarely covered at traditional bond market conferences yet offer tremendous value. We will also be unveiling a number of new features to the BondLink platform on Wednesday, which I will detail in a subsequent post.

Here's a preview of some of the roundtables at the Leadership Summit:

• David Lewis, BondLink’s Director of Marketing, will lead a session on how to develop a marketing plan with the goal of raising awareness for a bond sale. This will cover reaching out to both institutional and non-traditional investors;
• We’ll have a round table with two corporate VPs of Investor Relations, providing issuers with their perspective on how to maximize an issuer’s return on investor outreach;
• Brendan McGrail, BondLink’s Director of Communications, will lead a panel of reporters/journalists on how issuers can work more efficiently with the financial media; and
• Dan Deaton, a partner at the law firm of Nixon Peabody, will outline how issuers can develop a clear legal framework for communicating with investors.

The bond market needs to move forward in terms of overall efficiency, greater transparency and the wider use of technology. That evolution has to come from issuers, and we believe our clients are the first movers. As interest rates move higher, the issuers who provide efficiencies to their investors will do better than those that don’t.

In Shakespeare’s "Julius Caesar," a fortune teller warns the Roman emperor of bad things to come on a specific period of the calendar. The warning was not heeded, and poor Julius was murdered by Brutus and his fellow Senators.

Stakes aren’t as high but some warning signs started blinking last week for issuers. First, long-term yields started to widen significantly. On Thursday, the 30-year MMD hit a yield of 3.20%. That’s 17 basis points higher than it was three weeks prior, reflecting a steepening of the yield curve that will translate into higher costs for issuers needing to access capital on the long-end. According to a story by Bloomberg’s Danielle Moran, investors on the long-end this month experienced the highest loss relative to other maturities due to the market’s downturn.

The spike in 30-year rates was coupled with more data that indicates the investor-base on the long-end has weakened considerably. According to Michelle Kaske, banks have sold close to $27 billion of their muni holdings over the first two quarters of 2018, the first time these investors have been net sellers in over eight years. This should be really concerning for any issuer needing to access large amounts of capital on the long end, as banks and property & casualty insurance companies are the two most important buyers. Both of these investors have stopped buying – only banks right now are sellers, according to Fed data – due to changes in the corporate tax code.

The first story from last week might be a short-term blip – a little bit of rate volatility. Or it might be a result of the second story. Market risk is always going to be present for any issuer, and good ones know how to be proactive to hedge or minimize that risk – like adjusting the method of sale. But the longer-term warning sign indicates we’re in a new bond market and the investor base is very thin. Not adjusting for this new reality is like Caesar brushing off the fortune teller.

As a former issuer, I know firsthand the challenges of alerting and attracting investors to a bond sale. In my role as Executive Director of New York City Municipal Water Finance Authority, I had the resources to institute a sophisticated and robust investor outreach program, but we had to do it all manually – planning our annual investor event and organizing tours, sending invitations, and meeting one-on-one with investors. I couldn’t help but imagine there had to be an easier way to reach more investors.

And as the marketplace continues to evolve, the need for easier and more efficient investor outreach is becoming more important than ever. Just recently, Bloomberg’s Michelle Kaske wrote about the largest U.S. banks cutting their municipal bond holdings by more than $16 billion in the first half of 2018. The result of tax reforms is that these banks simply don’t need to hold as many munis. That means one of the biggest groups of buyers in a typical market is no longer as reliable for an issuer. What do you do?

If you’re an issuer looking to lower your borrowing costs, you have to drive demand for your bond sales. And with banks holding fewer munis, you have a lower number of buyers to attract. I joined BondLink less than two weeks ago, and every day I come to work I’m more and more confident that this company is the answer to these new market dynamics. BondLink provides the tools issuers need, from a customizable IR website, to unlimited roadshows hosted on the site, and investor analytics that enable issuers to better understand their bondholders’ interests. And all of this creates dramatic efficiencies across the market.

Plus, the BondLink platform enables issuers to tell their own story.

If you’re an issuer who doesn’t communicate directly with bond investors, then investors will turn to the only other source to provide context for the raw data they are consuming: the rating agencies.

Rating agencies are a necessary and important part of the process of accessing capital. The need of investors to garner a third-party evaluation of an issuer is never going to go away. Like the reviews of a product offered on Amazon.com, rating agencies’ opinions of an issuer’s creditworthiness help buyers evaluate a bond offering. But most importantly, investors want the agencies’ context for the issuer’s numbers and the interpretation of the numbers.

Despite the value of ratings, leaving that role up to the rating agencies is a shortcoming that can create a big exposure for issuers. Rating agencies will interpret an issuer’s financial position based on their own criteria, which can change over time. They can also emphasize one aspect of an issuer’s fundamentals and not another, and they often don’t really measure what’s not seen.

It's easy to see that I’m excited to be here. I’m looking forward helping issuers realize the massive long-term impact of a robust investor outreach program, and I’m thrilled to know that the market finally has a single tool that can help issuers optimize their borrowing costs.

I know a lot of people dread September because it represents the end of summer, but it’s one of my favorite months of the year.

There are a couple of reasons for this, including the fact that my kids go back to school (finally). The weather in Boston is near-perfect this time of year as well, with the humidity abating. But September also kicks off the stretch-run in baseball.  As part of that final push of the baseball season, each team is allowed to expand its roster in what is known as the “September Call-Ups.”

Here at BondLink, I’m thrilled to announce our “September Call-Ups” for 2018, all with deep experience in the muni market: Tom Paolicelli, John Murphy and Brendan McGrail. We’re not driving toward a pennant or anything like that. We’re scaling our business to provide more tools and technology in order to bring issuers and investors together more efficiently.

Their areas of responsibility at BondLink – on issuers, bond investors and communication, respectively – speak to the company’s mission to move the bond market forward through enhanced transparency.

Tom’s focus will be on issuers as he brings more than two decades of experience in various roles. He was most recently the Chief Deputy Treasurer for the County of San Diego, overseeing the Treasury and Investment Division. Prior to joining the County, he was the Executive Director of the New York City Municipal Water Finance Authority, one of the largest financing entities in the U.S. during its most active period, issuing over $30 billion in bonds. He was also a Vice President/Senior Analyst for Moody’s Investors Service in their U.S. Public Infrastructure Team. Tom was also active in the GFOA, an incredible organization of issuers that develop and recommend best practices. Tom was on the GFOA’s Treasury & Investment Management Committee and Online Financial Transparency Taskforce.

John’s focus at BondLink is on developing tools and solutions for investors, after having spent nearly three decades on the buy-side. He joins BondLink from Fidelity Investments, where he was a senior bond trader and later senior research analyst in a career spanning nearly 20 years. He previously served as vice president in trading and structured products for J.P. Morgan Securities after working as an associate with Banker’s Trust.

Disclosure is not as effective if it’s not communicated effectively, and that’s Brendan’s area of expertise. He spent most of the last decade in corporate communications with J.P. Morgan, and previously wrote the daily municipal bond market column as a reporter for Bloomberg News. He most recently served as Director of Communications for a private ski resort in Vermont and also worked as a writer for Massachusetts Governor Mitt Romney after beginning his writing career with the Worcester Telegram.

We’re thrilled to have individuals who are that accomplished and experienced to help BondLink continue to meet the growing demand for our suite of products.

You can read more about BondLink's "September Call-Ups" in The Bond Buyer.

Investors and issuers got two different messages out of Washington in the past 10 days or so, both pertaining to approaches to disclosure to markets. One is a really bad idea to make certain investor disclosure less frequent; the other is a very good enhancement of disclosure requirements in the municipal bond market.

First, President Trump tweeted that he has directed the Securities and Exchange Commission to study whether to shift public companies’ reporting to a semiannual schedule from quarterly public reporting. The theory is that quarterly reporting discourages firms from making long-term investments. According to the Wall Street Journal, the SEC has required quarterly earnings disclosures since 1970 in order to protect public investors and enhance corporate accountability.

Requiring less frequent disclosures is a really bad idea for any market and can lead to less liquidity, higher transaction costs, less certainty in valuations, and more opportunity for insider trading with longer dates between public reporting. There is also very little evidence that quarterly reporting has hindered the ability of long-term focused companies from raising capital. For example, pharmaceutical and biotech companies are able to raise capital efficiently despite drug pipelines that can be many years long. Amazon is another example. CEO Jeff Bezos is famously long-term focused, and yet the company has a market cap of over $929 billion. In every one of his annual letters to investors since 1997, Bezos has reminded investors that the company will plow resources back into research and development.

"…We believe that a fundamental measure of our success will be the shareholder value we create over the long-term…We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions...”

More frequent reporting improves the efficiency of public markets, whether it’s the stock market or #muniland. The President has the right to ask the SEC to study whether there are indeed benefits to less frequent reporting, but I suspect the study will come up empty.

Just a few days after the President’s tweet that seemed to encourage the idea of less frequent disclosure, the SEC broke its own news with a statement that it has finalized amendments to Rule 15c2-12. Currently, this rule defines 14 material events that issuers have to disclose to bond investors.

With the latest amendment, the SEC is requiring further enhancements to disclosure in the muni market. To wit, the disclosure of bank loans and private placements. We’ve written before about the need for issuers to disclose these obligations. They’ve exploded in popularity with both banks and issuers partly for their lower cost and efficiency of execution. However, these agreements typically involve large sums of public dollars, and can include provisions like acceleration that could give a first lien over bondholders.

Like the comment above about the President’s tweet, I think the focus for issuers should always be long-term. Your relationship with your bond investors are long-term, as you will be relying on bondholders to buy your bonds over the next 50 or 100 years. If you think a private placement is in the best interest of your bond program and your constituents, by all means pursue that structure. Just disclose the fact that it was executed and disclose its terms.

Credit goes to the MSRB and its former chair, Nat Singer. Nat is one of the smartest people in #muniland, advising some of the top issuers in the market. When he was chair of the Municipal Securities Rulemaking Board in 2015 and 2016, it circulated a concept release to see whether it should require municipal advisors to disclose information about their issuer clients' bank loans in reaction to the plethora of private placements getting done. This got the ball rolling. As such, I will now refer to this rule change as the “Nat Singer Enhancement to 15c2-12.”

Officially, the compliance date for the rules will be 180 days after they are published in the Federal Register. But issuers should recognize the long-term importance of disclosing these agreements and start to voluntarily post them to EMMA and their investor websites as early as possible.

When you’re an issuer, it’s really hard to measure the effectiveness of the myriad decisions you have to make in managing your bond programs. For example, when I was an issuer, I struggled to measure if I made the right decision to advance refund bonds. Did I time it right or did I waste the option by pulling the trigger too early? On a pre-sale basis, I’d also often wrestle with bond structuring decisions, such as couponing. Should I have pushed for a lower coupon on that bond? Or, should I have stuck with a 10-year par call option, or instead tried for shorter calls?

Literally scores of decisions that could greatly impact how your bonds price in the market, and consequently the cash flows required to repay the bonds over two or three decades, and yet there was virtually no mechanism to isolate the cost/benefit of a single decision. I think the lack of market signals on these decisions is probably why a lot of issuers follow the status quo when issuing bonds. The default option seems to be plain vanilla fixed-rate bonds with 5% coupons and a 10-year par call.

All of these questions fall into a catch-all of “Can I get paid for making better decisions?” I’ve written in The Bond Buyer and previously in The Fisc about issuers getting “paid” by investors for having better disclosure and transparency. To put it more succinctly, the question comes down to “Will the bonds I’m responsible for issuing price better based on the decisions I make in the structuring phase of the financing?” It’s an incredibly important question for all public sector debt managers to ask themselves.

Some new and exciting research provides very positive market signals for issuers thinking about issuing Green Bonds. Researchers Malcolm Baker, Dan Bergstresser, George Serafeim and Jeffrey Wurgler released a draft of their white paper, “Financing the Response to Climate Change: The Pricing and Ownership of U.S. Green Bonds” at the recent 2018 Brookings Municipal Finance Conference last month. You can read it here.

The research paper provides an overview of the U.S. municipal bond market covering 2,083 Green Bonds issued between 2010 and 2016. The issuance of bonds identified as “green” rose from less than $500 million a year in 2010 to over $2 billion in 2014, totaling $6.5 billion in 2016. The authors point out that most of the bonds are self-labeled as “green” by issuers due to a lack of a standard set of definitions in the muni market, and the bonds’ purposes include a wide variety of projects that were intended to be environmentally beneficial.

The results of their analysis are very powerful: Green Bonds are issued at a premium to otherwise ordinary bonds – that is, with lower yields on an after-tax basis. They estimate the pricing advantage at six basis points, or an amount equal to about half of a bond credit rating notch, according to their study. To quantify this using some very conservative estimates, on a $100 million bond sale with level debt service over a 30-year maturity, the present value of a reduction in the True Interest Cost (or TIC) of six basis points is worth nearly $1 million to an issuer. That’s real money. Further, Green Bonds that are certified by a third party like the Climate Bonds Initiative price at an even higher premium.

The “why” to this pricing advantage flows into a second meaningful benefit that should get the attention of issuers looking to diversify and grow their investor base: Green Bonds ownership tends to be concentrated with investors who are not just seeking yield, but also seek to invest with some measure of social responsibility. To quote the authors: “A subset of investors appears willing to sacrifice some return to hold green bonds, particularly ‘certified’ green bonds. Green bonds are held disproportionately by these investors.” To put it another way, if you issue Green Bonds there is a good chance your bonds find their way to new investors. That diversification is very valuable over the long-term.

This is critically important research given how fast the Green Bonds corner of #muniland continues to grow. And it’s exactly the type of research that could drive capital budgeting decisions all over the country. Investors are sending signals to governments that they value the opportunity to invest in environmentally beneficial projects. Issuers should recognize those signals and adjust accordingly, but so should the policy makers like the governors and mayors who determine which projects receive capital funding.

Sun. Sand. And Shark Week.

As millions of people enjoy the beach during summer vacation, Discovery Channel delivers its annual reminder that many things – some potentially harmful, and some just downright scary – may lie beneath the surface. It’s a good analogy for municipal bond issuers when it comes to current and future interest rates.

Two weeks ago, Heather Gillers wrote a great article in The Wall Street Journal on how attractive interest rates are right now for bond market issuers. You can read it here. She’s right. The 30-year borrowing rates remain at or slightly below 3% according to the Thomson Reuters MMD scale. By contrast, 30-year mortgage rates are 4.625%, roughly 160 basis points higher. Issuers should take advantage on the continued low interest rates for as long as they last.

Heather’s article also pointed out one of the big reasons why this is occurring: the supply of new bonds in 2018 is significantly lower due to some accelerated 2017 borrowing. Through mid-year, supply is down 17% year-over-year, and Citigroup is expecting that the 2018 total issuance number will be 25% lower than in 2017. Supply is so low that net supply, the amount of new bonds being issued compared with outstanding bonds maturing, has been negative. This has led to an environment in which investors are grabbing for bonds and driving down interest rates.

So, on the surface, the bond market – like ocean waters – appears placid and safe. But what’s below the surface? Are dangers lurking that issuers should keep in mind?

Yes.

The primary driver of current interest rates is lack of supply. It’s masking other rip currents in the market that lie unseen below the surface. To wit, major traditional buyers of munis have stopped buying in 2018 because of new tax code changes. In other articles, Amanda Albright of Bloomberg noted that property & casualty insurers have stopped buying munis. According to Fed data, these buyers currently hold over $340 billion in tax-exempt bonds. Bloomberg’s Michelle Kaske reported that major Wall Street banks have stopped buying munis for the first time since 2009.

The key takeaway for issuers is that there are risks in the municipal bond market. There is likely a higher cost of capital lurking beneath the surface. We’ll probably see it when supply of new-issue bonds in the market reverts to traditional levels. In other words, issuers should beware the unseen “swimming sharks” and other potential dangers. You may never get bit, but isn’t avoiding an injury preferable to surviving one? Issuers can and should remain mindful of hidden dangers and take smart action to ensure their future debt financing is a success.

It’s been two months since the GFOA hosted its 2018 annual conference in St. Louis, and, before it gets too far in the rearview mirror, I wanted to offer a few takeaways for issuers.

The conference was excellent overall. Given the huge success of the GFOA’s 2017 conference in Denver, I thought going into the 2018 event that St. Louis had its work cut out for it to match. It delivered big time. The GFOA did another terrific job packing the schedule for issuers, including timely sessions on topics such as the new normal for the municipal bond market post-tax reform. The sessions were augmented by speakers who really framed success for members. Kudos to Chris Morrill and Pat McCoy for putting together a great event.

The GFOA’s annual conferences continue to get better and better, and if you’re an issuer and not regularly attending this event, you should give it a try in 2019 when L.A. hosts the next one. You’ll come away more knowledgeable and energized from the interaction with your finance colleagues from around the country. It’s a tremendous amount of professional development packed into three days.

Again, comparing the 2018 conference with 2017, I didn’t think the keynote in Denver (Jim Collins) could be matched in terms of offering valuable advice and perspective to public sector CFOs. But the address by New York Times columnist Thomas Friedman was outstanding.

I wanted to highlight a theme that was covered by Friedman in his presentation to the membership. He covered several aspects of his new book, “Thank You for Being Late,” and I was particularly struck by his message about the differences between stocks and flows.

When I hear the term “stocks and flows,” I think about a balance sheet and an income statement. Or about a bathtub and a faucet. Friedman was talking about stocks and flows in the context of trade and culture and information. He pointed out that most of the big and enduring cities in the world are built near water, either streams, rivers or the ocean. Why? Because water brings life. Running water can provide energy and bring fertility to the ground, but also to society. He tied this back to some of the most successful technology companies of today -- they are built close to the flows of information and tap into it.

This concept of stocks versus flows is also meaningful for issuers who are looking at how best to attract more investors, diversify their investor bases, and position themselves to issue bonds successfully for the next 20 or 30 years. The new dynamic in the muni bond market -- driven by investor demands, stepped up regulatory concerns, and a more expensive yield curve -- requires issuers who want to be successful to do more when it comes to their investors.

By “do more” I mean provide bond investors with a better experience and with real efficiency gains. This starts by thinking of investor disclosure as a flow, not as a stock. Producing a thorough and easy-to-read Appendix A to your POS prior to your next bond sale is a stock; providing a stream of current data and documents to investors in between bond sales is a flow. The stock is important and meaningful, but it represents a quantity or quality existing at a single specific point in time in the past. For issuers, this might mean your financial position as of the month prior to the bond sale. A flow by contrast, is all of the financial data that you or your government produce over time. It shows investors the changes over time. That’s a lot more valuable.

Investors need and want that flow of issuer information; they want to open the faucet and receive a steady stream. Successful issuers know that it’s a much more valuable investment to establish a good disclosure flow, rather than simply fill the tub when it’s time to issue bonds.

I welcome your thoughts.

In a decision that has been long anticipated by state and local governments, the Supreme Court last week sided with governments that want online retailers to collect state sales tax from consumers. In South Dakota v. Wayfair Inc., the Court voted, 5-4, to overturn the outdated physical presence standard in the 1992 Quill ruling for the collection of state sales taxes. Kudos goes to organizations like the GFOA who have been pushing Congress for a more equitable and streamlined tax system when it comes to sales tax. Congress never budged, but the Courts finally did.

GFOA members stand to benefit greatly as this is a pretty positive turn of events for state and local governments. For decades, governments have lost billions of dollars in tax revenues as more and more consumption in the U.S. moved online, away from brick-and-mortar stores. The early boom of e-commerce was fueled in part by the fact that goods purchased online were less expensive than the same goods purchased in a store because, for the most part, sales tax was not being collected by online retailers. Writing for the majority, Justice Anthony Kennedy cited a study that estimated the loss of uncollected tax revenue at $33.9 billion annually.

Which leaves us with an interesting question: What to do with an estimated $34 billion in new annual revenue?

Governments have a number of options. They can immediately factor in those new annual revenues into operating budgets; they can use the new funds to pay down liabilities or increase reserves for a rainy day; or they can dedicate them to one-time infrastructure investments.

If the choice is investing, a government could pledge of portion of new internet sales tax revenues for a bonding program, while the remainder could be used for pay-as-you-go capital projects such as a preventative maintenance program. Bonding is all about leverage. Pledging these revenues would enable governments all over the country to jump start capital projects and generate myriad new construction jobs. Assuming a 3x coverage test, $34 billion in new annual revenue would generate about $175 billion in bond proceeds that could be used for critical infrastructure needs like schools or bridges.

Of course, these revenues will not flow to a single government that would have the ability to issue bonds against them – 45 states have a sales tax. But it’s a very positive development, and governments should consider where best to deploy these new funds for the long-term benefit of their constituents.

The annual Infrastructure Week is once again in the rearview mirror, and we hope our social media posts have helped to contribute to the discussion on one of the most important topics facing our country.

We mentioned last week that repairs to our roads and bridges are infrastructure projects we can all get behind. This week we wanted to mention one more: our schools.

As our economy and employment base continues to evolve, it’s imperative that our public schools evolve with it. That means not only the curriculum, but also the facilities themselves. Everyday nearly 50 million American kids attend public school in about 100,000 facilities, according to the American Society of Civil Engineers (ASCE). ASCE estimates that roughly a quarter of all K-12 schools are in “fair” or “poor” condition. That’s not where this country should be when it comes to the condition of our schools. The annual funding gap – ASCE’s estimate of a financing gap – is $38 billion. Most of that will have to come through the issuance of bonds.

The Massachusetts School Building Authority is the state-level issuers of bonds for public school construction throughout the Commonwealth, having contributed more than $13 billion towards school repair and new construction. The State of Georgia is coming to market with $1.2 billion in bonds next month, with plans to fund nearly $500 million for higher education and another nearly $400 million for K-12 projects. In Rhode Island, voters in November will vote on a $250 million bond issue that was part of the governor’s budget proposal this year. If approved, it will mean a quarter billion dollars in the Ocean State will fund things like science and engineering facilities, early childhood education, and bringing existing facilities up to date.

We inevitably get cynical when it comes to discussing government, but isn’t it obvious that we need to invest more in our K-12 school facilities if we want to maintain the level of growth, wealth and discovery that we’ve all come to expect? The States of Georgia and Rhode Island are just two of many thousands of issuers throughout the country that access private capital in the municipal bond market to improve education for our children. There’s a lot of buzz right now around sustainable investments, but what’s more sustainable than bonds used to fund the schools where our next generation of our leaders with learn?

BondLink is looking forward to Infrastructure Week 2019 already, and we hope these discussions continue until then. It’s #TimetoBuild

BondLink is excited to celebrate the sixth annual National Infrastructure Week. It truly is #TimetoBuild.

We’ve written more than once on our disappointment in the so-called infrastructure deal unveiled by the Administration earlier this year. That proposal lacked substance, lacked speed and lacked scale – three things that a true infrastructure plan needs to succeed. From top to bottom, our country is in desperate need of infrastructure investment. The American Society of Civil Engineers gave America’s overall infrastructure a grade of D+ in 2017, illustrating the relatively poor condition and performance of the country’s infrastructure.

There are so many opportunities to improve. Think about it. How was your commute to work today? Was traffic stalled on the highway? Was your train slow? And public schools: what condition was your children's school in this morning when you dropped them off?

Let's start with infrastructure repair that everyone supports: better roads and bridges. Every year, it seems, highways are more jammed with vehicles and public transportation gets slower. We can do so much better. And we have an amazing tool at our disposal. Municipal bonds offer the cheapest way to finance the new infrastructure that the U.S. needs, and this is a great week to highlight and promote policies that support the growth and development of the muni bond market. It starts and ends with more tools for issuers: first, resurrecting the Build America Bond program to enable issuers access to a greater pool of capital; second, enhance the Federal Highway Trust Fund to finance road, bridge and surface rail transportation projects across the country; and third, flexibility with the tax code to allow for things like advanced refundings or the ability for issuers to reopen an existing/outstanding CUSIP to enhance the liquidity of their bonds.

And beyond the discussion of tools for issuers, let’s get into tools for investors. How do we encourage more investment in these infrastructure projects? How do we make financing public projects as compelling for individual investors as watching the stock ticker on CNBC? The answer is simple: issuers should take steps to connect investors with the projects their bonds are financing. And beyond the initial bond financing, issuers should incorporate technology to enable a strong social connection with these projects by proving ongoing project updates. This is easily achievable with a dedicated investor platform like Bondlink. And this week, through our social media channels, we’ll be highlighting projects our clients are undertaking, and showing how effective their investor relations sites are at keeping bondholders informed.

The muni bond market has been impaired to some degree over the last two decades due to the lack of disclosures around various financing structures. Think of interest rate swaps and auction rate securities.

Issuers embraced these less-than-vanilla structures as low-cost alternatives to plain-vanilla, fixed-rate bonds, jumping right in for the cheaper financing. It proved profitable for Wall Street, but bond investors were generally kept in the dark in terms of the disclosure of their existence and the legal provisions underpinning them.

Since the Financial Crisis, the new exotic structure has been so-called direct placements, which are private loan agreements between a bank and an issuer. Like swaps and auction rates, issuers have used them extensively. Market participants estimate that more than $60 billion in private placements are currently outstanding. In most cases they don’t meet the definition of a federal security, therefore they generally fall outside the disclosure requirements of the SEC and MSRB, and it’s been hard for investors to receive timely disclosure of these debt-like structures.

The credit risk? That the private agreements may contain acceleration provisions that push the bank acting as the lender in front of all bondholders.

The Governmental Accounting Standards Board (GASB) last week released new guidance “designed to enhance debt-related disclosures in notes to financial statements, including those addressing direct borrowings and direct placements.” This is valuable and important guidance to issuers. But because the vast majority of muniland bond issuers conduct only annual audits, GASB’s guidance to outline these agreements in the notes to the financial statements – literally the footnotes of documents that can run over 200 pages – is only a half-step because it does nothing to spur contemporary disclosure.

Why? The key is timely disclosure.

Imagine an investor analyst who is responsible for the credit surveillance on 100 or more issuers. If one of their issuers comes to market with robust primary market disclosure for its once-per-year issuance, chances are that analyst won’t get fresh, timely disclosure for another year – when the issuer comes back to the bond market. Even then, the investor probably wouldn’t get full access to all of the terms and provisions of these agreements.

What’s the solution? Market signals from investors.

Short of a change to 15c2-12, issuers won’t be required to provide these agreements to investors. But some will do so voluntarily – those that “get it” when it comes to the importance of timely disclosure and those that follow GFOA and NFMA best practices. Those are the issuers that should get access to the lowest cost of investor capital.

We think it’s a good thing if investors can send signals to issuers about disclosure practices. It may be an unavoidable growing pain for the market’s future if issuers are bucketed into those that disclose and those that don’t.

After questioning “Where’s the beef?” last week as we reviewed the Administration’s infrastructure investment plan, we’d be remiss not to provide our recipe this week. Our unsolicited advice for the White House & Congress: If you want an infrastructure plan to have scale and speed, use existing channels.

I filled up my gas tank on Sunday to the tune of $46.88. I know that I paid $2.95 per gallon – about half the cost of a gallon of spring water – but I have no idea what I paid in federal and state gas taxes. This admission comes from someone who has issued over $1 billion in gasoline taxes.

Most motorists don’t do a calculation of the spilt between the cost of the gas and the tax levied on top of it; they focus solely on the affordability. And relatively speaking, gasoline in the U.S. is very inexpensive. The federal levy on gas itself is also relatively inexpensive.

The federal government collects roughly 18 cents per gallon on regular gasoline. These funds – a total of nearly $36 billion in 2015 – are collected in the Highway Trust Fund and then are apportioned and returned to each state. States use these critical funds to pay for the construction and repair of highways, roads and bridges.

The program has been in existence since 1956. Through wars and recessions, government shutdowns and rescissions, the program has worked extremely well to finance the most basic and arguably most important piece of public infrastructure: roads. And it’s a great example of how the federal and state/local relationship can work efficiently. Who in this country doesn’t support better roads?

The big challenge to this program is that the tax has not been adjusted for nearly 25 years. It was last increased – to its current level of 18.4 cents – in 1993. It’s a fixed levy, and not tied to inflation. So as cars have become more energy efficient over the past generation, less gas tax has been paid into the Trust Fund per mile. This has led to major underinvestment in road and bridge repair. According to the American Society of Civil Engineers, U.S. roads currently earn a grade of D.

Americans tend to bridle at the mere thought of a tax increase, but according to the U.S. Chamber of Commerce, a 25-cent bump in the gas tax – phased in over five years – would generate nearly $400 billion in additional revenue that could be used to fund our needed infrastructure projects. It’s a fair user tax, and importantly, can turbo boost infrastructure very, very quickly.

For nearly 90 years, the federal gas tax has done an extremely good job of helping finance roads and bridges throughout the country – and a lot of jobs. Maybe it’s time to beef it up.

The other channel we had in mind for boosting infrastructure investment is the capital markets: Provide the tools for issuers throughout the muni bond market to access a deeper pool of capital. To wit, allow issuers In the U.S. to attract capital from the taxable bond markets, including non-domestic capital. Bring back the highly successful Build America Bonds program (BABs) – created under President Obama as part of the American Recovery and Reinvestment Act of 2009. For President Trump, we’d recommend a name change (“Make America Great Again” Bonds or simply MAGA – sounds catchy, no?) and creating the program so it’s free from future Congressional budget rescissions. We’re not going to touch that subject now.

In 2009 and 2010, issuers from across the U.S. attracted new, taxable investors through the issuance of more than $180 billion in BABs. Foreign capital was slow to invest – in large part because the program was temporary and therefore the bonds would be less liquid.

The program was specifically designed to spur new capital expenditure – not refinancing – and offered a tremendous savings to issuers over the borrowing cost of traditional municipal bonds. For investors, it was an excellent new asset class, offering generally stronger credit quality for higher yields than comparable U.S. Treasurys (and corporate bonds). This was the perfect vehicle for U.S. issuers to access new capital. New capital is what is needed to fund a massive increase in infrastructure investment. Currently, the muni bond market is a relatively captive market -- the same set of issuers sell bonds to the same set of investors, with the market cap remaining relatively stable.

In short, there are already existing channels to help truly promote infrastructure improvements in the U.S. without forcing state and local governments to line up private funding. We have the beef; now let’s start cooking.

President Trump's visit to Ohio at the end of last week to promote his infrastructure plan left us revisiting the emotional rug-pull of the plan's original unveiling. As a child of the '80s, I had the classic Wendy's ad leap into my mind.

From small towns to large states, municipal issuers across the country are in dire need of funding for critically important infrastructure projects such as roads, bridges, schools, mass transit, water systems, etc. The American Society of Civil Engineers has pegged the funding deficit of public infrastructure projects at more than $3 trillion.

On the campaign trail and in his first year in the office, the President talked often about passing a $1 trillion infrastructure plan to "Make American Great Again." So, we were very surprised when the plan was actually unveiled last month. It relies heavily on public-private partnerships and the strategic use of $200 billion in federal funding to generate $1.5 trillion in matching local infrastructure spending.

We just don't see it. The $200 billion in new federal funding falls far short of what is needed (and what was promised). And this comes on the heels of the federal tax cuts/tax reform, which included a repeal of an important tool for issuers (advance refundings) and changes to the tax code that resulted in a loss of a significant investor base in the muni bond market, specifically property & casualty insurance companies.

The idea behind an infrastructure program is to stimulate new capital investments. A successful infrastructure plan therefore should provide scale and focus on speed. Move fast and build more projects than would be built in the absence of the stimulus. How? Boost funding, provide more tools not fewer, and use existing infrastructure investment channels.

Keep an eye on The Fisc, as we will be focused on these last three components -- the infrastructure "beef" that the country needs.

Last month, the Climate Bonds Initiative released its annual report on Green Bond issuance in the U.S. Municipal Bond Market. It’s excellent, and we encourage all to read it.

The data reveals an exciting trend: since the Commonwealth of Massachusetts brought the first $100 million to market in 2013, issuance of Green Bonds has soared. More than $11 billion in the debt was sold in 2017, up from just over $7 billion the previous year. The largest issuer is the New York Metropolitan Transportation Authority, followed by the State of California.

But despite the amount of bonds issued to date, Green Bonds remain an emerging asset class, with issuers and investors finding their way in terms of definitions and criteria. Today, California State Treasurer John Chiang is taking a strong leadership role in gathering market participants to outline best practices for Green Bonds. He’s hosting a two-day Green Bond Symposium at the Milken Institute. Check out the agenda.

In terms of the issuance process itself, issuers really need to focus on three things. First, they have to clearly define what they are considering a Green Bond. Second, they have to clearly outline their process and criteria for selecting environmentally beneficial projects to be financed by the Green Bonds. Third, and most importantly, they have to be committed to providing ongoing impact reports to Green Bond investors.

The most efficient and effective way to do this is by harnessing available technology to interact with investors. By incorporating a BondLink-powered investor relations platform, issuers can easily provide ongoing status reports on their Green Bond projects on a regular basis to their investors (and taxpayers), with automatic updates and photos/videos being pushed to investors who have signed up for alerts.

Like the project updates, issuers can develop written impact reports – acres of open space preserved, number of gallons of water cleaned, or miles of new rails laid for mass transit, for example – that can be automatically disseminated to investors. These details are an important piece of the investment for major investors who have dedicated Green Bond funds, such as Blackrock and State Street, but also for retail investors. The gold standard is the World Bank’s impact report.

If you’re an issuer who is thinking about Green Bonds, it will pay to focus on impact reporting in the months and years after the initial bond sale. How that reporting is handled, and the ease of use for investors, is absolutely critical.