Overview and Career Opportunities in Public Finance

Transcription

1 Overview and Career Opportunities in Public Finance Presented by Coleman Cordell Managing Director Orlando, Florida February 3, 2006

2 Mr. Coleman Cordell Managing Director of Florida Responsible for Committing and Coordinating Florida group Resources 23 years of experience over $35 billion in past experience Extensive experience as senior manager and financial advisor B.S.B.A and M.B.A. from the University of Florida Series 7 and Series 53 qualified

3 UBS Overview Global Investment Banking and Securities Firm Highest Corporate Credit Ratings (1) S&P Moody s Fitch UBS AG AA+ Aa2 AA+ Citigroup AA- Aa1 AA+ Bank of America A+ Aa2 AA- Bear, Stearns A A2 A+ Merrill Lynch AA- Aa3 AA- Morgan Stanley A+ Aa3 AA- JP Morgan Chase A+ A1 A+ Lehman Bros. A A2 A+ (1) As of June 1, National Underwriter Rankings (3) ($ in millions) Citigroup UBS Lehman Brothers J P Morgan Bear Stearns Goldman Sachs Morgan Stanley RBC Dain Rauscher Merrill Lynch Banc of America $49,919.1 $43,036.5 $42,287.0 $40,325.1 $62,548.5 $60,811.7 $60,636.2 $56,242.5 $126,724.4 $119,927.9 $0 $35,000 $70,000 $105,000 $140,000 (3) 1/1/03-12/31/05 National Negotiated Rankings World s s largest private bank Strongest unenhanced credit ratings on Wall Street Authorized to underwrite 15 times our net excess capital or $41.61 billion Demonstrated willingness to accept risk and commit capital on behalf of municipal clients Capital Position (2) ($ billions) $ $ Total Capital (2) As of 11/30/05. $7.020 Equity Capital $3.235 $2.774 Net Capital Net Excess Capital

4 Discussion Topics 1. What is Public Finance? 2. Who are the Participants in Public Finance? 3. The Industry 4. Types of Liens and Debt Instruments 5. Investment Banking Professionals 6. Career Opportunities

5 1. What is Public Finance? "Public finance" (government finance) is the field of economics cs that deals with budgeting the revenues and expenditures of a public sector entity, usually government. Governments, like any other legal entity, can take out loans, issue bonds and invest. Based on the taxing authority of the entity, they issue bonds such as tax increment bonds or revenue bonds. A bond issued by a public sector entity may give tax advantages to its owners.

6 1. What is Public Finance? Underwriting and Marketing Securities

7 2. Who are the Participants in Public Finance? Bond/Special Counsel Investment Banker/ Underwriters/Derivatives Specialists Financial Advisor Underwriters' Counsel Rating Agencies Issuer/Borrower Auditor Engineering/Feasibility Consultant Insurer/Guarantor Bond Trustee Issuer's Counsel Trustee's Counsel

8 2. Who are the Participants in Public Finance? Issuers/Borrowers States, Municipalities, Districts, Agencies, Universities, Utilities, Non-Profit Corporations, etc. Counsel to the Issuer Outside or General Counsel; not hired specifically for bond issue. Bond/Special Counsel Nationally recognized law firm with experience in debt financing. Financial Advisor Investment bank or financial advisory firm acting on behalf of Issuer. Senior Managing Underwriter (Book-Running) Investment bank with primary responsibility for developing the plan of financing, credit rating process, and leading pricing and marketing and sales efforts. Co-Managing Underwriters Investment banks selected to broaden bond marketing and distribution. Selling Group Securities dealers who participate in selling the bonds but do not share in the underwriting liability. Underwriters Counsel Law firm representing the underwriters, with experience in Public Finance debt financing.

9 2. Who are the Participants in Public Finance? Auditor Provides most recent annual Audited Financial Statements for inclusion in the Offering Statement to: Present the Issuer s financial condition and historical performance; and Facilitate year-to-year comparisons of financial information Engineering/Feasibility Consultant Performs study covering new project construction, projected sales and peak demand, comparative retail and industrial rates, and competitive conditions Insurer/Guarantor Bond insurance company, financial services company or bank may be used to provide credit enhancement. Municipal Bond Insurance Surety Policy Letter of Credit Rating Agencies National organizations that provide ratings on debt of public and private organizations. Standard & Poor s Corporation Moody s Investors Service, Inc. Fitch Investors Service, Inc. Bond Trustee/Paying Agent Retained by Issuer, but represents Bondholders interests Manages Trustee-held bond funds, reserves and construction If Trustee services are not required issuers may elect to use Paying Agent services

10 3. The Industry How big is the Industry? A Decade of Municipal Bond Finance January $12,299,600 $11,046,500 $18,302,800 $18,142,600 $9,973,200 $12,579,200 $21,790,700 $27,096,700 $20,724,200 $22,498,200 February 12,756,800 13,555,900 24,555,300 16,940,900 13,200,200 21,141,900 20,973,700 30,282,000 26,831,400 30,759,700 March 16,548,300 15,075,700 28,793,600 24,436,400 17,811,600 25,225,200 25,423,500 28,231,000 38,719,900 45,035,300 April 14,972,500 16,491,100 22,756,900 17,588,500 15,951,400 18,857,300 25,860,800 36,233,000 31,091,000 31,433,600 May 16,412,400 17,382,200 25,250,800 17,475,200 15,965,700 28,744,800 34,010,200 35,689,200 37,740,600 35,857,000 June 18,711,300 23,251,400 30,925,600 24,433,000 23,429,900 30,885,200 38,499,300 48,321,000 34,848,100 44,162,300 July 12,632,000 18,001,300 24,733,700 19,400,500 15,099,500 21,035,000 28,034,700 33,208,500 25,457,200 34,143,800 August 13,752,800 18,451,800 22,851,900 16,775,900 16,877,100 24,121,800 31,585,800 25,977,600 28,219,100 34,197,100 September 12,287,400 22,647,500 18,470,500 19,604,300 16,588,500 14,449,900 27,583,300 26,259,000 25,198,500 31,082,900 October 18,060,900 22,218,400 21,525,300 18,612,600 19,714,800 32,078,100 42,432,900 34,985,700 32,396,300 27,734,600 November 17,352,000 20,553,700 22,837,500 19,325,700 20,319,300 30,854,600 35,828,600 26,311,800 25,570,700 38,769,200 December 19,424,000 22,009,300 25,688,200 14,880,100 15,757,500 28,273,900 26,745,400 31,113,700 33,261,300 31,372,000 Total $185,210,000 $220,684,800 $286,692,100 $227,615,700 $200,688,700 $288,246,900 $358,768,900 $383,709,200 $360,058,300 $407,045,700 Number of Issues 12,157 12,648 15,409 13,215 11,257 13,793 14,404 15,033 13,603 13,827 Source: Thomson Financial (based on data available on Jan. 6, 2006). All dollar amounts are in thousands of dollars. Figures are based on issues maturing in 13 months or longer. Private placements and municipal forward sales are included, but shortterm notes maturing in less than 13 months and remarketings of variable-rate bonds are excluded. Taxable bonds issued directly by electric cooperative utilities are included.

11 3. The Industry How Big is the Industry and how has it grown? A Decade of Municipal Bond Finance $450,000,000 $400,000,000 $350,000,000 $300,000,000 $250,000,000 $200,000,000 $150,000,000 $100,000,000 $50,000,000 $0 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Dollar Volume of Activity (in $000's) Number of Issues (Right Axis) Source: Thomson Financial (based on data available on Jan. 6, 2006). All dollar amounts are in thousands of dollars. Figures are based on issues maturing in 13 months or longer. Private placements and municipal forward sales are included, but shortterm notes maturing in less than 13 months and remarketings of variable-rate bonds are excluded. Taxable bonds issued directly by electric cooperative utilities are included.

12 3. The Industry Biggest Issuers by State in 2005 States Par Amount (US$ mil) Mkt. Share Number of Issues California 57, ,143 New York 42, Texas 35, ,101 Florida 19, Pennsylvania 17, New Jersey 16, Illinois 15, Michigan 14, Massachusetts 13, Ohio 11, Source: Thomson Financial).

13 3. The Industry Biggest Issuers in Florida from Top Florida Negotiated Issuers 01/01/2002 to 12/31/2005 Issuer Par Amount (US$ mil) Rank Mkt. Share Number of Issues JEA 3, Miami-Dade Co-Florida 2, Orlando-Orange Co Expressway Au 1, Highlands Co Health Facs Auth 1, Broward Co-Florida 1, Jacksonville City-Florida Broward Co School Board Florida Ed Loan Marketing Corp Citizens Property Insurance Corp Orlando Utilities Commission Industry Total 41, ,106 Source: Thomson Financial).

14 3. The Industry Top Investment Banks for last 3 years Book Runner Full to Book Runner (Equal if Joint) Municipal New Issues Negotiated Issues from 1/01/03-12/31/03 Par Amount (US$ mil) Rank Mkt. Share Number of Issues Citigroup 43, , J P Morgan Securities Inc 21, Bear Stearns & Co 21, Morgan Stanley 20, Lehman Brothers 19, Goldman Sachs & Co 16, Merrill Lynch & Co 13, RBC Capital Markets 12, Banc of America Securities LLC 11, A G Edwards & Sons Inc 5, George K Baum & Company Inc 4, Morgan Keegan & Co Inc 4, Piper Jaffray & Co 3, Stone & Youngberg 3, Seattle-Northwest Securities Corp 2, ABN AMRO Incorporated 2, Wachovia Securities 2, Siebert Brandford Shank & Co 2, First Albany Capital Inc 2, Industry Total 303, ,711 Source: Thomson Financial).

15 3. The Industry Top Investment Banks for last 3 years Book Runner Full to Book Runner (Equal if Joint) Municipal New Issues Negotiated Issues from 1/01/04-12/31/04 Par Amount (US$ mil) Rank Mkt. Share Number of Issues 46, Citigroup 45, Merrill Lynch & Co 26, Goldman Sachs & Co 26, Lehman Brothers 26, J P Morgan Securities Inc 22, Morgan Stanley 19, Bear Stearns & Co 17, Banc of America Securities LLC 14, RBC Capital Markets 14, Morgan Keegan & Co Inc 6, Piper Jaffray & Co 5, A G Edwards & Sons Inc 5, George K Baum & Company Inc 4, Wachovia Securities 4, Stone & Youngberg 3, First Southwest Company 2, Legg Mason Wood Walker Inc 2, Seattle-Northwest Securities Corp 2, City Securities Corporation 2, Industry Total 357, ,312 Source: Thomson Financial).

16 3. The Industry Top Investment Banks for last 3 years Municipal New Issues Negotiated Issues from 1/01/05-12/31/05 Book Runner Full to Book Runner (Equal if Joint) Par Amount (US$ mil) Rank Mkt. Share Number of Issues Citigroup 50, , Bear Stearns & Co 22, Lehman Brothers 21, J P Morgan Securities Inc 20, RBC Capital Markets 17, Goldman Sachs & Co 16, Banc of America Securities LLC 16, Merrill Lynch & Co 15, Morgan Stanley 14, Morgan Keegan & Co Inc 6, A G Edwards & Sons Inc 6, George K Baum & Company Inc 4, Piper Jaffray & Co 4, Stone & Youngberg 3, First Albany Capital Inc 3, Seattle-Northwest Securities Corp 3, First Southwest Company 3, Ziegler Capital Markets Group 2, City Securities Corporation 2, Industry Total 330, ,632 Source: Thomson Financial).

17 4. Types of Liens and Debt Instruments Types of Liens General Obligation Bonds A bond that is secured by the full faith, credit and taxing power r of an issuer. General obligation bonds issued by local units of government are typically ly secured by a pledge of the issuer s s ad valorem taxing power Revenue Bonds A bond that is payable from a specific source of revenue Examples: Gas Tax, Sales Tax, Excise Tax, Franchise Fees, etc. Enterprise Fund A fund established by a governmental entity to account for operations of an enterprise activity. Enterprise funds generally are segregated as to purpose and use from other funds and accounts of the governmental entity with the intent that revenues enues generated by the enterprise activity and deposited to the enterprise fund will be devoted principally to funding all operations of the enterprise activity, including payment of debt service on securities issued to finance such activity. Examples: Water and Sewer System, Solid Waste, Stormwater,, etc.

18 4. Types of Liens and Debt Instruments Types of Debt Instruments Fixed Rate Bonds An interest rate on a security that does not change for the remaining ining life of the security. Variable Rate An interest rate, sometimes referred to as a floating rate, on a security that changes at intervals according to market conditions or a predetermined index x or formula. Types of Variable Rate Bonds: VRDOs (Variable Rate Demand Obligations) Floating rate obligations that have a nominal long-term maturity but have a coupon rate that is reset periodically (e.g., daily or weekly). The investor has the option on to put the issue back to the trustee or tender agent at any time with specified notice (e.g., seven days ). Auction Rate Securities Variable rate bonds whose interest rate is reset periodically under the Dutch auction process. Commercial Paper Short-term, term, unsecured promissory notes, usually backed by a line of credit with a bank, that mature within 270 days.

19 4. Types of Liens and Debt Instruments Derivatives are used to Synthetically Structure Debt by the use of an Interest Rate Swap Contract Interest Rate Swap Contract: A contract entered into by an issuer r or obligor with a swap provider to exchange periodic interest payments. Fixed-to to-floating Rate Swap An agreement whereby an issuer synthetically converts fixed rate debt into variable rate debt through an interest rate swap. Floating-to to-fixed Rate Swap An agreement whereby an issuer synthetically converts variable rate r debt to fixed rate debt through an interest rate swap. Optionality (Swaption) An option held by one party that provides that party the right to require that a counter-party enter into a swap contract on certain specified terms. Forward Starting Swap An agreement whereby two parties enter into an interest rate swap p agreement to begin at a future date.

20 5. Investment Banking Professionals Investment Bankers Educate Issuers about various financial products and advise the issuer on the benefits and risks associated Help assess Issuer s s needs and address those needs with innovative financial solutions Maintain longstanding relationships and monitor issuer's needs and financing opportunities before, during, and after every financing. Underwriters Develop marketing strategy Coordinate input sales professionals Help finalize bond sales/structure Establish price/yield levels on the bonds Sales Professionals: Institutional and Retail Help coordinate marketing strategy Obtain input from investors regarding bond structure Solicit orders for the bonds Internal Credit/Research Staff Write credit report and assist institutional sales force Traders Maintain secondary market trading liquidity for investors Buy and sell securities for a firm s s account Derivatives Group Specialty Bankers who focus on the various types of Derivatives Assist issuers in understanding the transaction in regards to structure and documentation Derivatives Desk executes Derivative Transactions

21 6. Career Opportunities Ways to break into the Industry Recruitment by Investment Banks at Universities Enter into a Training Program as either an Analyst/Associate Work your way up through the ranks Seek Internships Join a Financial Advisory Firm Build relationships and gain experience and knowledge while learning the technical aspects of Industry Work your way up through the ranks Seek Internships Obtain a position in the Public Sector Seek a position in Treasury or Debt Administration for a municipality, an authority, or a non-profit organization Work your way up through the ranks Seek Internships What to Expect Steep Learning Curve Steady and solid workflow throughout the workday and evening A large amount of team work and group interaction