Bonds Nora Chavez, the Former Finance Manager

¶ … Bonds

Nora Chavez, the former finance manager for the city of San Antonio, Texas and current Board member to the energy company in San Antonio presented a process for the issuance of general obligation bonds. Her area of expertise was extolled upon the fact that she now is employed by an Investment Banking firm that handles general obligation bonds on a consistent and continuing basis.

Chavez, first explained to her audience that a municipal bond, and in this case she focused on general obligation bonds, is issued by cities, states, and public entities in search of long-term capital improvement dollars to fund projects such as roads, buildings, and other major projects. She emphasized the fact that each project, and the issuance of bonds to pay for the projects, had to first be approved by voters. Additionally, issuing general obligation bonds also meant that the taxing entity charged with the issuance must first show a method and source for the repayment of those bonds. According to Nora that source of repayment is usually in the form of a tax such as sales and use tax, fees associated with the project or property taxes etc.

The process for issuing the bonds begins with a budget. The city will normally categorize the budget into short- and long-term categories. The short-term is usually maintenance projects not the capital improvement projects requiring bond issuance. The long-term projects are usually considered in a 5-10-year time frame, although they could run much longer. The example she gave was the recent toll road that was to be paid for over a 40-year period of time. Once the budget is in place and projects have either been marked as short or long-term, a finance manager will focus on how to finance the long-term projects.

According to Nora, this is normally accomplished through the issuance of bonds. A long-term bond usually has a fixed rate of return, can be called, can be refinanced, is tax exempt and appeals to a broad spectrum of investors.

Chavez went on to explain that there are a number of risks involved in the issuance of municipal bonds; to the city, investors and the underwriter, which is why due diligence is exercised by all parties. The city wishes to get the best price for their bonds, the underwriter wishes to offer the best product to the investor, and the investor wishes to guarantee a stable, tax-free income, with relatively low risk.

Before a bond can be issued a number of events must take place, and a large number of documents concerning the issuance must be produced. A prospectus or official statement, a presentation to the rating agencies and preliminary official statements prepared by the underwriter(s) for the investor(s) must all be produced. Additionally, the authority to issue must be confirmed.