New York City officials have delayed the selection process for managers of its bond underwriting syndicate, according to city officials and market sources.
They said the main reason is that the city's request for proposals by bond dealers will include more sophisticated questions about complex municipal financings, such as the use of derivative products, and the city's financial needs.
City officials would not comment publicly about the matter.
The city's next issue is scheduled for February. The selection process, which begins with a mailing of requests for proposals to major Wall Street investment banks, was tentatively scheduled to start sometime this week, about two weeks after the city's last general obligation bond sale on Oct. 20, investment bankers and city sources said.
But this week city finance officials decided to postpone the mailing after rethinking the documents' contents, according to city and market sources. The requests could still be sent anytime before January, the sources said.
A request for proposal asks municipal bond underwriting firms to explain why they can best serve the city, the nation's largest municipal bond issuer.
The city's last request for proposals to underwriters was sent in early 1990, when newly elected Mayor David N. Dinkins and city Comptroller Elizabeth Holtzman stressed they would include more firms owned by women and minorities in the city's bond syndicate. Their offices work together in reviewing and selecting the team.
The administration that year mailed documents to about 50 firms and also received proposals from firms that responded to advertisements, city officials said.
After reviewing responses and conducting interviews, the city in late spring selected five senior managers and 17 co-managers, as well as a small, special underwriting bracket.
One city source said the new request for proposals will reflect "a change in the circumstances" surrounding the fiscal health and capital needs of New York City.
As a result, the city will ask firms to provide answers to a much different set of questions than it did in 1990, when the city faced severe budget gaps and volatile markets.
The source also said the capital needs of the city now include different variables than it did two years ago.
Since Dinkins' election, the city has received state legislative authority to issue floating-rate debt and zero coupon bonds, the city source said.
There is also a willingness by city hall to use derivative products and possibly tap global markets for its bond deals.
As a result, the city is trying to determine "how to write a good RFP," the source said. It "doesn't want to ask questions for answers it's not prepared to deal with."
Another city source said the scope of the last city general obligation bond deal, which closed Oct. 28, forced the city to postpone many of the decisions it needed to make regarding the request for proposals. The $1 billion deal, lead-managed by Lehman Brothers, included the sale of several derivative products.
Winning the city's business is one of the fiercest competitions for the municipal bond underwriting community. The city issued more than $4 billion of bonds this year, with senior managers reaping most of the deal's profits.
After its 1990 selection process, the city chose First Boston Corp.; Goldman, Sachs & Co.; Lehman Brothers; Bear, Stearns & Co.; and Merrill Lynch & Co. as senior managers and rotating bookrunners.
