Appendix B: Tender Refunding and Debt Policy Considerations

Additional information to support GFOA Best Practice: Tender Refunding of Municipal Bonds

Why would issuers consider such transactions?

  • Incremental savings above other traditional refunding strategies
  • Refund transactions that are not otherwise refundable.
  • Implement other changes to bonds or financing structures that are not otherwise achievable.

What are other considerations for tender transactions?

  • Parties in the transaction and their specialized expertise and roles not typical of other municipal transactions
  • Uncertain outcomes tied to the level of investor participation and tender price from utilizing outside professionals and services to identify and contact as many bondholders as possible or challenges in setting tender offer price:
  • The price the issuer is willing to pay must be acceptable to bondholders (which will likely include a premium to current market rates/prices). Understanding how investors price bonds already in their portfolios is important.
  • Choosing the tender pricing mechanism best suited to meet the issuer’s objectives (fixed dollar amount, fixed spread to index, or Dutch auction)
  • Market conditions can affect the success of a tender offer. If market sentiment changes, bondholders may choose not to participate, impacting the overall outcome. Sensitivity of market disclosures during the entire tender process. Tender offers are subject to federal antifraud laws (SEC Rule 10b-5 and Section 17(a) of Securities Act of 1933), similar to new offerings of municipal bonds. Understanding how decisions made by the issuer during the tender process may negatively affect either tendering holders as well as non tendering holders and understanding the implications for investor relations
  • Additional cost and time
  • Opportunity cost/benefit analysis of proceeding with a tender vs. other options

Why issuers may not/ should not consider doing such transactions?

  • Additional costs/ uncertain outcomes (including setting stakeholder expectations and potential challenge of complying with existing policies regarding savings levels or patterns)
  • Investor relations
  • Inability to assure full defeasance of bonds
  • Administrative burdens
  • Risks of not completing transaction (as a standalone)