 |
Home | Search | Browse | About IPO | Staff | Links |
|
Home | Search | Browse | About IPO | Staff | Links |
|
The Bond Prospectus
In an earlier article on "Marketing Municipal Bonds," the term "Bond Prospectus" was casually mentioned. We feel that this document is so essential to the successful marketing of municipal bonds that we are devoting an entire article to this subject. The bond prospectus is nothing more than a factual outline of the make-up of the community issuing the bonds. It is prepared so the buyer of the bonds can familiarize himself with the municipality and community and determine the feasibility of his selling the bonds to an ultimate investor. While this is not a required essential to issuing bonds, a favorable effect can be so important that it is really a "must" in issuing bonds. A well prepared prospectus can result in an active market with resulting interest savings. On a million dollar issue maturing in twenty years, a 1/4% interest savings will net a city over $25,000. Once it has been determined that there will be a bond sale, the next determination is to try to obtain the lowest possible interest rate. To do this, a municipality must use every tool at its command. The bond prospectus is one such important tool. The bond prospectus should contain (1) the official notice, (2) the bid form, (3) financial statements, (4) other general information. The financial statements should include (a) debt schedules, (b) tax schedules, (c) revenue and expenditure schedules. The debt schedules should have (a) a statement of outstanding debt by funds, (b) future requirements including the proposed issue, (c) a statement of sinking funds, (d) statement of debt to debt limit, (e) statement of overlapping debt (f) and other related statements possibly comparing debt to assessed valuation and to population. The tax schedules should include statements on assessed valuation for the past ten years and tax levy and collection information for like period. The revenue and expenditure statement should include several, preferably five to ten, prior years figures. Mandatory expenditures should be explained as these pledged amounts diminish the amount of funds available for executive, managerial discretion. This statement is of the utmost importance in revenue bond sales as it very definitely indicates the soundness of the utility and feasibility of the issue. In preparing the prospectus, one should always keep in mind that volume is not important. Rather, good organization of material, neatness and attractiveness are of the ultimate. Text of the prospectus should run from 10 to 15 pages of single spaced typewritten material. A small issue could run less and a large issue could exceed this number of pages. A locally marketed issue could be only one or two pages. Plenty of white space should be used with an occasional picture being used. The prospectus should be in good taste and not gaudy. Expensive promotional brochures can arouse the suspicion of prospective investors. Plastic spiral bindings will lay flat and are desired by investors who may have a number of offerings to consider. The cover could use a view of the issuing city or in the case of revenue bonds, a picture of the facility being financed through the issue. SOME OF THE STATISTICAL DATA THAT COULD BE FURNISHED MIGHT INCLUDE:
(1) Area in sq. mi. by decade.
Illinois Parks and Recreation 10 September/October, 1975
(12) Number of schools and school enrollment.
A neat, well prepared, factual bond prospectus will attract competitive bidding and will net the local government a bonus in lower interest rates on their bond offering.
Illinois Parks and Recreation 11 September/ October, 1975 |
|
|
