LOS ANGELES - California Treasurer Kathleen Brown late Monday released the state's first-ever written statement detailing responsibilities and performance expectations for underwriting firms that handle state financings.
The treasurer's office developed the document "to provide written communication of the state's goals and expectations regarding aspects of the financings, such as the pricing and allocation of bonds, and to ensure that responsibilities for the financings are clear so that the process is smooth and orderly." Ms. Brown said in a statement.
The 18-page document, plus seven pages of sample reports, provides an overview of how syndicate members should handle many underwriting details. Subjects include fees and expenses, use of of selling group, retention and takedown designation policies, and pricing procedures.
From an underwriting standpoint, the document means that "everybody has the same road map and knows where the state wants to go," said Anthony Taddey, a managing director of Morgan Stanley & Co. "It's helpful in that it lays out the framework of what the state hopes to accomplish."
Ms. Brown has said she wants to make the state's expectations clear to the underwriting community.
As part of that process, the treasurer's office last September released its first written guidelines for the competitive selection process of underwriters for negotiated bond sales. In March, it issued additional guidelines for the selection of legal counsel on bond financings.
In regard to issuing the latest policies, Mr. Brown said she wants to make it clear that "my office is an active, involved participant in the bond financing process." She noted, for example, that bookrunning senior managers are required to obtain the treasurer's approval of plans for allocating bonds to the syndicate and selling group.
Market participants noted that many major issuers assume a similar oversight role in regard to such details. The difference in California's case is that "It's all written down on a piece of paper," said an underwriter, who added that the format statement helps "codify things."
Regarding bond allocation for an issue, the state generally prefers no more than 50% to any one firm.
Consistent with state goals, the allocation plan also targets 15% to minority-owned firms, 5% to women-owned firms, and 3% to firms owned by disabled veterans. "These percentages should be exceeded when possible." the policy document adds.
The treasurer's policies call for the use of a selling group if the size of an issue exceeds $100 million. The bookrunning manager also should expect to reserve up to 10% of the aggregate issue, subject to the treasurer's approval, for allocation to selling group members, the policy document says.
The document also reiterates the treasurer's policy regarding post-sale evaluation, which determines whether the state obtained the best price of an issue and whether syndicate. members and minority enterprises participated meaningfully in the transaction.
Parties interested in obtaining copies of the underwriting policies and procedures should contact the treasurer's trust service according to a news release.