Financial Advisor
The financial advisor is a consultant retained by the issuer to advise and assist in devising a financing plan for the debt issue. Such advice will generally involve determining how to structure the new issue, establishing its terms and conditions, and deciding the timing of its release to the public. More specifically, the role of the financial advisor is to:
- • Review the financial feasibility of the project and assess the issuer’s sources of revenue
- • Assess the issuer’s ability to stay under the debt ceiling
- • Recommend a financing structure and maturity schedule
- • Recommend a call schedule for the bonds and the timing of their sale
- • Assess the bond’s impact on the community’s credit rating
- • Prepare an official statement for distribution to potential underwriters and investors
The extent of the financial advisor’s role may depend on the financial sophistication and workload of the issuer. Sometimes, advisors are retained for the sole purpose of assessing market conditions and the appropriateness of the underwriter’s offer to buy the bonds.
A financial advisor is usually a bank, investment bank, or private consultant. The relationship is formalized with a signed contract laying out the responsibilities of the financial advisor and the compensation to be received. The contract will be signed at or just after the advisory relationship begins.
Prohibition on Engaging in Underwriting Activities. The MSRB prohibits a financial advisor from acting as an underwriter or placement agent on the same issue. This is to prevent a conflict of interest. A financial advisor generally seeks the lowest possible interest cost for an issuer, while an underwriter seeks the highest yield that makes the securities at