Issuance & underwriting

The issuance of revenue bonds is slightly different from the process for general obligation (G.O.) bonds. One key difference is that revenue bonds don’t have to be issued through a competitive bidding structure. Instead, most revenue bonds are sold through a negotiated underwriting, where the issuer selects an underwriter and isn’t required to choose the lowest-cost firm.

Another difference is how the bonds are sold to the underwriting syndicate. In a negotiated underwriting, the bonds don’t have to be sold to the syndicate on a firm basis. The issuer and the lead underwriter negotiate the terms of the deal in advance and may choose a best efforts underwriting. In a best efforts underwriting, the underwriter agrees to try to sell the bonds, but the issuer keeps any bonds that aren’t sold.

A best efforts underwriting shifts more risk to the issuer, since the issuer may be left with unsold bonds. Because the syndicate is taking less risk, the underwriter’s services typically cost less.

From the underwriter’s perspective, the overall process is similar to underwriting G.O. bonds, with two main differences:

• The underwriter negotiates the deal terms with the issuer (instead of submitting a competitive bid).
• The agreement among syndicate members is called the agreement among underwriters, rather than the syndicate letter.