First Chicago Capital Markets is using the Internet to solicit underwriters for a $6.9 million bond issue for the village of Northbrook, Ill.
As the financial adviser, the unit of First Chicago Corp. last Friday posted a 24-page preliminary offering statement for the Illinois village, widening the prospective field of bidders for the municipal bond.
First Chicago said Internet access to a wide array of underwriters will make the bond cheaper to issue.
"There's no question that we will have improved the interest rate prospects for the village," said Thomas J. Campbell, senior managing director of First Chicago Capital Markets.
Normally, there are about five bidders on any triple-A credit like Northbrook. First Chicago hopes the Internet will increase that to seven or more.
"They've got to be getting the lowest rate in the market on any given day," by using the Internet, said Mr. Campbell.
Thus far, about 80 electronic inquiries have been made about the issue since it was posted last Friday.
Although First Chicago couldn't determine who was looking at the proposal through the Internet and it didn't have a particular target number, it was pleased with the initial response.
The posting contains all the pertinent financial information on Northbrook, in addition to the structure of the deal, except for interest rates.
The Internet listing also contains a description of the use for the proceeds, which include improving roadways, acquiring public safety equipment, refinancing Northbrook's more expensive bond issues, and constructing two fire stations.
First Chicago said the Internet listing enhances the search capabilities of prospective underwriters. "The Internet gives you instantaneous disclosure," said John Peterson, a vice president with First Chicago.
While hopeful about the potential benefits of Internet access, First Chicago also sent out hard copies of the proposal.
By sending out hard copies, First Chicago not only gives those who don't have access to the Internet an opportunity to bid for the deal, but also minimizes the potential concerns of the Securities and Exchange Commission.
"If we delivered the offering electronically only, we would have had to have a hard copy correspondence between ourselves and the recipients saying that they accept this as the method of delivery and they reserve the right to receive this by hard copy in the future," said Mr. Campbell.
First Chicago put a notice on the Internet previously about a municipal bond deal, for a school district in Illinois, but had not gone as far as posting a preliminary offering.
Municipal bond underwriters said providing information through the Internet could have some positive effect in the future, although they said the ultimate test is whether electronic delivery of information is cost effective.
Selling the bonds through the Internet is the next step, said industry followers.
The idea met with some skepticism among players in the municipal bond industry.
"We add value by talking about the transaction with the customer (i.e. the prospective investor)," said one underwriter.
Others expressed concerns about how regulatory agencies might view such an electronic securities transaction.
Nonetheless, the industry generally thought the process would inevitably evolve towards a more active use of technology.
"Clearly, a portion of the future of the securities business lies in technology," said Si Matthies, a senior vice president and trading manager at Norwest Corp.
Said Mr. Campbell: "The industry is evolving. We're just trying to help it evolve faster."
