Tennessee sold its largest-ever debt issue last month, a $546.7 million mixture of taxable and tax- exempt securities to help finance economic development and refund outstanding debt. Mary-Margaret Collier, Tennessee’s director of state and local finance in Nashville, recently spoke about the negotiated sale in an interview for today’s issue of the Bloomberg Brief: Municipal Market newsletter.
Q. Why did you use two managers, JPMorgan Chase & Co. and Citigroup Inc.?
A. When you’re selling taxable and tax-exempt debt, you’re marketing in different ways to two different kinds of investors, and in the case of taxable debt, you’re marketing to and trying to sell your debt to the global market. We sold debt to German banks in the past and to other foreign banks. But this was the largest taxable issue that the state has ever sold.
We wanted our bankers to be able to focus on their market first of all and focus on getting the information out to their markets. So we decided to use two separate banks. One team can focus on the tax-exempt portion, one can focus on the taxable portion. The other thing we were able to do with this, the state of Tennessee normally sells its debt by competitive sale -- we don’t have a lot of negotiated sales. It was an opportunity for us to go through the negotiated process, work with underwriters. We need to do that every once in a while and this was a great opportunity. It gives us a chance to sharpen our pencils a little bit.
Q. Were there any special challenges to this sale?
A. There were challenges.
We didn’t want to have two investor roadshows going on, so we had the senior managers coordinate the investor roadshows we agreed to and they worked together so that the investor roadshow could be used by both the taxable and tax-exempt market. The official statement, other than the structure of the debt, was the same for both.
So a few special issues like that were involved. It worked out very well, everyone worked together. It was important to get the same set of information out to all investors and that was our focus.
Q. Is there any special reasoning behind the tax-exempt and taxable couponing?
A. Yes there was. Part of the Internal Revenue code on arbitrage requires us to look at whether there are certain characteristics of the projects we are funding that require that the project be funded with taxable debt rather than tax-exempt debt. So the projects that we funded with taxable debt fell into that category.
Q. Who were the primary buyers?
A. We had retail investors, next would be retail trust funds, then we had bond funds, pension funds, insurance companies, and all of the other institutional investors. We were able to sell a good amount of the debt to retail investors or trust funds for retail investors, and we were very pleased with that.
Q. Do the state’s localities miss bond insurance, which used to cover more than 50 percent of the market?
A. We’re very fortunate in Tennessee to have larger counties and cities all rated AA, AA+. Some of the cities are rated AAA, and so those communities are fine without the bond insurance. Where the bond insurance was a big help was to smaller communities, and those communities ranked in the AA-, single-A category. And I do think they miss the insurance. They have to work harder to make sure their credit is of the quality that they can continue to sell bonds.
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