The Role of the Underwriter
Christopher J. Mier, CFA Managing Director Loop Capital Markets
This chapter discusses the complex role of the underwriter in a new issue municipal financing. The underwriter artfully stands in between the issuer and investor and seeks to price new issues such that an efficient and fair market is created for both buyer and seller. The discussion in this chapter touches on the many functions an underwriter must perform in meeting the challenges of bringing new issues to market in ever-changing market environments.
THE UNDERWRITER’S ROLE IN CONTEXT
A municipal bond originates as an idea. Initially, a unit of government—a city, a county, or a school district, for example—has a project that needs financing. It could be a new courthouse, jail, or water treatment facility. Or perhaps it is a new generating plant for an electric utility, or an expansion of a hospital. The list of possible uses of tax-exempt financing available through the municipal market is enormous. In any case, what starts out as a project in the gleam of a finance director’s eye gets transformed into a municipal bond issue through a process that starts within the unit of government and winds its way through various professional organizations it has hired to assist in the creation and distribution of a municipal bond issue. The end result of this process is a bond issue that has been sold to the investing public—both retail and institutional. In return, the governmental ...