3.2.3.3. Bond Purchase Agreement
The syndicate will distribute the preliminary official statement to potential investors in an effort to solicit their business. You may recall from the SIE that with corporate securities, underwriters may only take indications of interest, not actual orders, prior to the formal start of an offering. Since municipal bonds are exempt from the Securities Act, however, municipal underwriters can take presale orders from investors. While presales occur in both competitive and negotiated offerings, an underwriter that has already been chosen by the issuer has more incentive to engage in early marketing to investors.
Remember: Municipal underwriters may take presale orders, but corporate underwriters may not.
A negotiated sale also offers more flexibility with regard to setting and changing the sales date or the structure of the issue in response to market changes. Preliminary prices may be revised upward or downward as the proposal takes shape. An issuer may advance or delay the sale date in an effort to get the best possible terms.
When the issuer and underwriters agree on a set of proposed interest rates, the underwriters will release the pricing to their clients and allow them a certain timeframe in which to enter orders. During this order period (which, like the order period for a competitive bidding, can run from one hour to five days), the underwriter will monitor the flow of orders. If the issue becomes oversubscribed too quickly, it may recommend lowering the interest rates. If the issue is selling slowly, it may recommend a higher set of interest rates.
Once the issuer and underwriters agree on a final pric