Negotiated Sale Authorization
Revenue bonds generally do not require a public vote of approval, so it is not necessary to demonstrate through a competitive bidding process that they are being sold at the lowest possible cost. The issuer of a revenue bond, therefore, may select an underwriter earlier in the process through a negotiated bid. An issuer will typically select a few underwriters to give pitches. The issuer will choose an underwriter based on the underwriter’s reputation and pitch, which usually reflects its knowledge of the market, financial resources, and experience. An offering through a negotiated bid is often referred to as a negotiated sale.
The issuer may post a Request for Proposal (RFP) in which it solicits the services of an underwriter. Underwriters can respond with their qualifications and a proposed plan for underwriting. In responding to a Request for Proposal, the underwriter may give advice or make recommendations about the issuance of a municipal bond without being categorized as a municipal advisor. This is known as an RFP exemption.
In a negotiated bidding process, an underwriter may be selected before the bond issue has been structured. Thus, part of the underwriter’s role is to help the issuer determine the types of bond (e.g., term, serial), how many bonds to sell, and the yield of the bonds. In fact, the underwriter may serve as an issuer’s unofficial financial advisor, as long as its primary role as underwriter is clearly understood. Sometimes, an independent financial advisor will also be selected solely to assess the work of the underwriter.
Since the underwriter helps to structure the issue, it will employ its own legal counsel, known as the underwriter’s counsel. The underwriter’s counsel performs a due diligence review of the issuer to ensure that its financial condition and plans are accurately disclosed. The underwriter’s counsel also helps prepare the bond purchase agreement, which is the contract bet