| DEFINITION: The underwriter is responsible for bringing municipal bonds to market. Also known as municipal securities dealers, underwriters purchase newly issued bonds from municipalities and then sell them to investors. |
In the case of municipalities…
The underwriters are responsible for working with the issuer and all related parties to structure and sell the bond issuance. Issuers select underwriters directly or through a request for proposal bidding process. There are four levels of underwriters that participate in municipal bond issuances.
- The senior underwriter. Also known as the book-running manager, they work directly with the state or local government to structure the issuance. Such as putting together marketing plans and necessary disclosures. They lead the marketing effort in selling bonds to investors.
- The co-senior manager, who tends to focus on a particular role, such as greater involvement in the financing. Co-senior managers are generally involved in larger bond issuances.
- The co-managers, who are other underwriting firms, used to help with the marketing and sale of the bonds.
- Selling group members, who have the sole responsibility of selling bonds to investors.
| EXAMPLE: The state of California made a $2.23 billion general obligation bond issuance in 2022. Wells Fargo and Morgan Stanley were underwriters for this bond offering. The underwriters purchased the bonds for $2.57 billion from the state of California — which included a $344 million issuance premium, less a $5.4 million underwriter discount. The underwriters then sold the municipal bonds to investors. |
What’s important here?
Underwriting is the process of creating municipal bonds that the underwriters then sell to investors. Municipalities use these securities to raise funds for projects.
Issuers select underwriters directly or choose them based on a request for proposal bidding process.
There are four levels of underwriters — senior underwriter, co-senior manager, co-manager, and selling group member.