Municipal Bonds: An Issuer s Perspective

Transcription

1 Municipal Bonds: An Issuer s Perspective September 19, 2017 Participants: Natalie Brill, Chief of Debt Management, City of Los Angeles Carol Kostik, Deputy Comptroller for Public Finance, City of New York Moderators: Euriah Bennett, Vice President, Fidelity Capital Markets Debra Saunders, Vice President, Fidelity Capital Markets Fidelity Capital Markets is a division of National Financial Services LLC, Member NYSE, SIPC

2 Agenda Fidelity s role in the municipal bond market What can bonds be used for? Why issue bonds? About the issuers Why are retail investors important? Keeping investors informed post-issuance How to purchase bonds at Fidelity 2

3 3 Fidelity s role in the municipal bond market

4 Fidelity Capital Markets Municipal Finance Group: What we do Mission: Provide Fidelity s clients with ongoing access to diverse high quality bonds from municipal issuers across the country through our underwriting of negotiated and competitive transactions 4 Images for illustrative purposes only

5 Presenters Natalie R. Brill, Chief of Debt Management, City of Los Angeles Chief of Debt Management since 2000 In Los Angeles, Debt Management is a division the City Administrative Officer Debt Management oversees a variety of bond programs, from general obligation to special revenue bonds The city s debt portfolio exceeds $5.2 billion in par Carol Kostik, Deputy Comptroller for Public Finance, City of New York Appointed Deputy Comptroller for Public Finance in 2006 after serving as CFO of the NYC Housing Development Corporation Oversees debt issuance and management for the City Comptroller Independently-elected Comptroller and Mayor work together to bring a large variety of bond programs to market New York City s debt portfolio tops $110B in par across numerous credits 5

6 6 What can bonds be used for?

7 Capital expenses vs operating expenses Capital expenses Operating expenses 7 Refunding bonds are issued to pay off earlier bonds for interest rate savings $$$ $$ Images for illustrative purposes only

8 What is a capital project? What criteria does a project have to meet to get consideration for funding? Useful life Government purpose (for tax exemption) Essentiality service Voter priorities 8 Images for illustrative purposes only

9 9 Why issue bonds?

10 The pros and cons of debt Pros Debt plays a critical role in building the country s infrastructure Respond to growth and community needs Timely construction delivery Enhances public safety and quality of life Best way to match the payments with the users Cons Creates a long term liability Costs more to borrow than pay cash 10 Images for illustrative purposes only

11 Controls on how much is issued Legal limits IRS State constitutions Market-driven limits Bond covenants Credit impacts Governmental oversight 11 Images for illustrative purposes only 1

12 12 About the issuers

13 Types of bonds and the capital planning process 13 The big picture Different bond credits Matching revenue streams to uses Voter approval requirements can vary Lease revenue bonds play a role in California The capital budget process: balancing needs and priorities Capital planning as part of the budget cycle Government agencies develop capital budget priorities Multi-year planning horizon Regular updates * Source: New York City Comptroller s Office as of April 26 th 2017 New York City Capital Commitment Plan , Economic Development 5% Sanitation 3% City Operations/ Facilities 32% Housing 8% City-Funds* Mass Transit 1% Roadway, Bridges 14% Environment al Protection 19% Education 18% Los Angeles Outstanding Direct Debt as of July 1, 2017 Total: $2.28 Billion MICLA Equipment Leases 16.6% MICLA Real Property Leases 50.6% (Voter-Approved in Blue) General Obligation Bonds 37.8% Judgment Obligation Bonds 1%

14 The issuance process When is it time to issue bonds? Keeping projects going between sales Commercial paper Reimbursement method Time bond sales based on need, not interest rate predictions 14 Images for illustrative purposes only

15 Beyond the headlines How do you make infrastructure cool? Tell us something unique about Los Angeles Exciting projects to look out for Voter involvement in shaping the City Tell us something unique about New York City What are some of the landmarks that have been built with bonds As a market leader, what innovations have you seen Where would an investor find information about this? 2 15 Images for illustrative purposes only

16 16 Why are retail investors important?

17 Why do you reach out to retail investors? As constituents Your projects, your benefits Accountability Investment at home New York City triple tax exemption An important investor class Retail investors are the mainstay of the municipal market In aggregate, a large buyer of bonds that adds investor diversification Retail investors tend to be a stable investor class Presence of retail promotes transparency in the market Good for the market to provide retail same access as large institutions 17 Images for illustrative purposes only

18 18 Keeping investors informed post-issuance

19 Post-issuance: keeping investors informed What is your role as an issuer in keeping investors informed? Continuing disclosure agreements and more Where can investors go for this information: EMMA Rating agencies Dedicated investor websites New York City: Los Angeles: You are now leaving Fidelity.com for a website that is unaffiliated with Fidelity. Fidelity has not been involved in the preparation of the content supplied at the unaffiliated site and does not guarantee or assume any responsibility for its content. 19

20 Why participate in the new issue market? Retail priority Order priority (usually): Individuals place orders BEFORE institutional investors (money managers, insurance companies, etc.) Allocation priority: Individual investors get allocation review before institutional investors Transparent pricing Bonds are sold at the same price as institutional investors Fidelity s online platform makes it easy Primary market pricing levels reflect the most recent disclosure documents, affirmed or updated ratings, and investor demand No mark up New issue municipal bonds have no additional mark-ups* Issuer pays the transaction costs Up-to-date disclosure documents & ratings Access to current disclosure documents Call optionality Call dates are furthest out in a bond s life Recurring investment opportunity Certain issuers come to market regularly, providing individuals with multiple investment opportunities in a name and credit 20 * Fidelity makes new-issue municipal bonds available without a separate transaction fee. Fidelity Brokerage Services LLC and National Financial Services LLC receive compensation for participating in the offering as a selling group member or underwriter.

21 Where to find new issue municipals on Fidelity.com Research > Fixed Income, Bonds & CDs drop-down on Fidelity.com Search for Individual Bonds, Municipal, New Issue Or look in the fixed income carousel for the featured transactions 21 Images for illustrative purposes only

22 Presenters bios Natalie R. Brill, Chief of Debt Management, City of Los Angeles Natalie has served as the Chief of Debt Management in the Office of the City Administrative Officer, City of Los Angeles, since Ms. Brill manages a $5.6 billion debt portfolio, consisting of general obligation bonds, judgment obligation bonds, lease revenue obligations as well as special fund debt such as the City s wastewater system revenue bonds, sanitation revenue bonds, and various assessment bonds. Since assuming her current position, the City issued its first synthetic General Fund fixed-rate debt instrument, involving the execution of $235.2 million in two competitively bid swap agreements, instituted a $335 million General Fund commercial paper program, and four direct loans or private placements. Each of these programs has produced thousands of dollars of savings to the City and its taxpayers. Ms. Brill has a Bachelor of Arts degree in Government from Pomona College and a Master of Arts Degree in Humanities from the University of Chicago. Ms. Brill lives in the City of Los Angeles with her husband and has two children. Carol Kostik, Deputy Comptroller for Public Finance, City of New York As Deputy Comptroller for Public Finance, Carol Kostik manages City debt issuance and related policy and administration on behalf of Comptroller Scott M. Stringer. Since her appointment in 2006, Ms. Kostik has managed the issuance of over $110 billion of City debt to fund capital projects and to refinance high interest rate bonds for budget savings. She has led Comptroller s Office municipal market initiatives that brought greater competition to City bond sales, increased the diversity of the City s finance teams, and built a substantial investor information website with new communication tools. Ms. Kostik helped the City s debt program successfully weather the severe market stresses of 2008 and subsequently capitalize on new financial instruments and historic low interest rates, and she oversaw development of Comptroller Stringer s New York City Green Bond initiative. Ms. Kostik was first appointed by Comptroller William C. Thompson, Jr. in 2006 and reappointed by Comptroller John C. Liu in January Before joining the Comptroller s office, she was Senior Vice President and Chief Financial Officer of the New York City Housing Development Corporation. She also served as Chief Financial Officer for a state authority and as a vice president in Merrill Lynch & Company s public finance department. Ms. Kostik holds a Bachelor of Arts degree in political economy from Williams College and a Master s degree in Business Administration from Stanford University s Graduate School of Business. The Municipal Forum of New York honored her with its Public Service Award in 2010, and Northeast Women in Public Finance gave her the Freda Johnson Public Sector Award in

23 Fidelity Capital Markets moderators bios Euriah Bennett, Vice President, Fidelity Capital Markets Euriah Bennett is a Vice President of Fidelity Capital Markets Municipal Finance Group. Mr. Bennett joined Fidelity Capital Markets (FCM s) Municipal Finance Group in 2014 to expand the Group s coverage of municipal issuers in Texas, the Southeast and Midwest. Additionally, he provides guidance on initiatives in Capital Markets to expand investor opportunities in primary market municipal bond offerings. Mr. Bennett has over 20 years of public finance experience, having served public entities across the country as both an investment banker and commercial banker. Prior to joining Fidelity Mr. Bennett was employed at Raymond James where he developed new business opportunities in the Southeast and Midwest. Euriah has senior and co- managed, privately placed, or executed derivative based transactions in virtually every sector of the public finance market including general infrastructure, healthcare, housing, transportation and higher education. Euriah has an A.B. in Economics from Stanford University and an MBA with a concentration in finance from Columbia Business School. He currently holds his 7, 53, and 63 licenses. Debra Saunders, Vice President, Fidelity Capital Markets Debra joined FCM in April, 2010 to open the firm s West Region Office, based in San Francisco. Since joining Fidelity, Debra has served as lead banker on over 100 transactions totaling over $100 billion in par. She has over 25 years of municipal market experience including credit analysis, issuer experience and liquidity provider experience. Debra is a regular contributor to Fidelity s customer education and outreach on municipal bonds. Debra developed the widely presented seminar for investors entitled Understanding the Municipal Market and the New Issue Process which is a step by step guide for investors in municipal market dynamics, highlighting the advantages of new issue bonds and how to order as well as a guide for reading an official statement. Prior to joining Fidelity Investments, Debra worked as a municipal credit analyst at Ambac Assurance Corporation for over 20 years and served as managing director of the West Region from 2007 to In this position, she led a team of professionals responsible for marketing, credit analysis, structuring and negotiating a variety of public finance transactions, including excise tax bonds, tax allocation bonds, lease revenue bonds, transportation, higher education and other enterprise revenue bonds. She received her Bachelor of Arts Degree from Queens College and her Masters of Public Administration from New York University Wagner School of Public Service. Debra holds FINRA licenses Series 7, 53 and

24 Sources For all the following URL s below: You are now leaving Fidelity.com for a website that is unaffiliated with Fidelity. Fidelity has not been involved in the preparation of the content supplied at the unaffiliated site and does not guarantee or assume any responsibility for its content geles+homeless+bonds&aqs=chrome..69i j0j4&sourceid=chrome&ie=utf-8 24

25 Questions Past performance is no guarantee of future results. The information presented reflects the views of the speakers as of September Views expressed do not necessarily represent the views of Fidelity Investments and are subject to change at any time based on market or other conditions. Fidelity disclaims any responsibility to update such views. Views may not be relied on as investment advice, nor are they a measure of the suitability of any particular security or trading strategy. Please determine which security, product, or service is right for you based on your investment objectives, risk tolerance, and financial situation. Be sure to review your decisions periodically to make sure they are still consistent with your goals. Specific securities mentioned are for illustrative purposes only and must not be considered an investment recommendation or advice. Natalie Brill and Carol Kostik are not employed by Fidelity Investments. The City of Los Angeles, the City of New York and Fidelity Investments are independent entities and are not legally affiliated. The information provided above is general in nature and should not be considered legal or tax advice. Consult with an attorney or tax professional regarding your specific legal or tax situation. Interest income generated by municipal bonds and certain securities issued by U.S. territories, possessions, agencies, and instrumentalities is generally exempt from state income tax but is generally subject to federal income and alternative minimum taxes and may be subject to state alternative minimum taxes. Short- and long-term capital gains and gains characterized as market discount recognized when bonds are sold or mature are generally taxable at both the state and federal level. Short- and long-term losses recognized when bonds are sold or mature may generally offset capital gains and/or ordinary income at both the state and federal level The municipal market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities. Interest rate increases can cause the price of a debt security to decrease. A portion of the dividends you receive may be subject to federal, state, or local income tax or may be subject to the federal alternative minimum tax. Although bonds generally present less short-term risk and volatility than stocks, bonds do contain interest rate risk (as interest rate rise, bond prices usually fall and vice versa) and the risk of default, or the risk that an issuer will be unable to make income or principal payments. Additionally, bonds and short-term investments entail greater inflation risk, or the risk that the return of an investment will not keep up with increases in the prices of goods and services, than stocks. Fidelity Capital Markets is a division of National Financial Services LLC, Member NYSE, SIPC Fidelity Brokerage Services, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI The registered trademarks and service marks appearing herein are the property of FMR LLC. 25