Issuance & underwriting

The issuance of revenue bonds is slightly different from the process with general obligation bonds. In particular, revenue bonds do not have to be issued under a competitive bidding structure. Most revenue bonds are issued under a negotiated underwriting, where the issuer is under no obligation to hire the cheapest underwriter.

Also different from competitive underwritings, negotiated underwritings do not have to be sold to the syndicate on a firm basis. The issuer and lead underwriter will negotiate the deal before doing business together and may opt for a best efforts underwriting where the issuer keeps unsold bonds. Best efforts underwritings are more risk for the issuer, but make the services of the underwriter cheaper. The syndicate is taking less risk, resulting in a lower cost of doing business.

From the perspective of the underwriter, there isn’t much difference in their process versus underwriting G.O. bonds. Of course, there’s a negotiation with the issuer that doesn’t exist in competitive bids. Also, the agreement between the firms in the syndicate is referred to as the agreement among underwriters instead of the syndicate letter.