Types of Bond Sales: Competitive Sale

January 20, 2015 by Enzo Incandela, Associate | James M. Snyder, Partner
Once the school district makes a decision to raise capital by means of bonding, it must next consider which method of finding a “lender” or buyer of the bonds works best. Illinois school districts have flexibility as to the method of sale. A competitive sale of school district bonds is not required. The method by which to attract potential investors of bonds can be a critical component to the resulting interest rate the school district will pay to service its bonds. A credit rating is not legally required to be obtained by the school district in order to issue bonds. However, a credit rating may help lower interest costs, particularly in the case of public bond issuances. The following parts of this section discuss different forms of offering bonds to investors or “lenders” that are typically used.

Competitive sale. In a competitive sale, bonds are advertised for sale. The announcement, by way of a notice of sale, includes both the terms of the sale and the terms of the bond issue. Any investment bank, broker-dealer or dealer bank may bid on the bonds at the designated date and time in a “blind” fashion, meaning each bidder does not have knowledge of the other bids. The bidder with the lowest interest cost is awarded the bonds.

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