Two takeaways for Texas issuers in a recovering muni-market
The impact of the pandemic was plainly evident for those who worked in and around the municipal bond market last March. There was a period of about three weeks during which the fog of uncertainty was so thick that pricing a bond was challenging, if not unwise. As it happened, I was involved in a new issuance that was scheduled for pricing right at the beginning of that time period.
The trading desks saw the investors falling away. There was no market at that moment in time, and so the wise course was to pull back and postpone pricing. A few weeks later—as the market regained some stability—that transaction priced successfully, with the issuer successful in achieving the interest-rate savings it hoped for. As I reflect on that and other transactions this year, I see two clear takeaways for these times that provide direction in recovery.
Have a clear plan, with room for flexibility
As you might imagine, that three-week period was a time of great concern for issuers. Would they achieve the interest-rate savings they hoped and planned for? Would they have cash in hand to support a scheduled project?
Last spring, the importance of flexibility was on full display. Issuers could hold back if they weren’t burdened by inflexible, important deadlines. It’s a good idea to have some backup approaches in mind, in case a delay proves to be a wise move.
Those backup plans might include, for example:
- Adjusting expectations for a project start date
- Borrowing a portion of the needed funds through bank lending channels; this may be especially useful in situations where pre-construction work—such as engineering or architectual—could get started even before the full funds are in place
Flexibility can also be important with respect to the specific pricing window chosen. I observed how issuers can benefit by taking advantage of a growing market accommodation for a bit of leeway in the anticipated pricing day. One way this may look is identifying a target date but giving the underwriter specific flexibility to go to the market just before or just after that target.
Maintain clear and consistent communication
The other big takeaway from the worst-ever municipal bond market dislocation is the need for clear, frequent communication among issuers, their municipal financial advisors, and us. We recognized this early on and created a daily communication to issuers we know and work with. That daily update included a snapshot of market activity. We saw its usefulness with both advisors and clients and have continued the publication in a weekly format.
Clear communication is the only way to maintain trust through a difficult market context. It’s also a necessary condition for flexibility. That’s because when all parties are reviewing the same information, and action steps are transparently discussed, the result can be increasing levels of trust.
We were honored to help several clients in Texas achieve attractive pricing last spring, even during the thick uncertainty. Difficult markets can be frightening, but with the right communication and sufficient flexibility, it’s almost always possible to find a way forward.
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