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.
Direct placement or direct lending in the context of municipal bonds refers to any arrangement in which a single lender/buyer, such as a bank, pension fund, mutual fund, etc., purchases the bonds of the school district directly. This form of sale may also be described as a private placement, a direct purchase or a bank loan. Advantages such as avoiding instability in public markets, avoiding continuing disclosure requirements, and avoiding the rating process make direct placements an attractive option for issuers.