ATLANTA -- Dade County, Fla.'s board of commissioners Tuesday unanimously approved sweeping new rules for the selection of underwriters in negotiated deals.
Once the selection system is implemented later this year, according to finance director Edward Marquez, the populous Miami-area county will rotate its choice of top managers for negotiated financings from pools of managers chosen every three years.
Under the county's current system, managers for these transactions are chosen on a deal-by-deal basis. The new ordinance, sponsored by Maurice A. Ferre, the board's vice chairman, follows a prolonged period of discussion and controversy over the selection of managers.
Critics of Dade's selection system have charged that it made underwriter choice subject to political influence and did not adequately provide for the inclusion of minority-owned firms. In April, the Securities and Exchange Commission added to pressure for reform by opening an investigation into some county bond issues sold in 1990 and 1991.
"The ordinance is a positive step because I think it will make us more efficient-in the selection process and will also increase the possibility of employment of minority-owned investment banks," Marquez said yesterday.
Ferre is continuing to develop separate proposals setting new rules governing the choice of financial advisers and limiting campaign contributions from m the municipal bond industry, Marquez said. Details of the proposals -- which Marquez said will be submitted to the county's hoard of commissioners in early October -- will be available later this month.
It will probably take several months to set up the pools of underwriters, which must then be approved by the commissioners, Marquez said. Because of this, he said, the new rules will not apply to the selection of managers for Dade County's upcoming negotiated airport borrowing. Underwriters for the $350 million issue will be chosen in the next several weeks on the basis of responses to a recent request for proposals, he said.
In addition, the new rules will not be applied to bonds issued by four Dade county-related authorities: the Educational Facilities Authority, the Health Facilities Authority, the .Housing Finance Authority, and the Industrial Development Authority.
Marquez said that the first deal under the new system would probably be a new-money financing of $100 million to $400 million for the county's water and sewer system.
Although underwriters reached yesterday said they were taken aback by the complexity of the new ordinance, most also described the plan as a genuine attempt to continue underwriting selection reform begun last year. "The plan is long on procedure and detail, but it is well intentioned and it is a step forward," said Leopoldo Guzman, president of Miami-based Guzmau & Co.
Under the ordinance approved Tuesday, the designation of lead manager and two co-senior managers for each negotiated financing exceeding $50 million will be chosen from a pool of three teams, each comprising three pre-selected managers, Marquez said.
In a given financing, he said, one of the teams will be chosen to head up management. From that team, one of the members will be chosen as lead manager, and the other two will serve as co-senior managers, be said. For the next deal, the senior management team will be rotated to another three-member team. When each of the three teams has been chosen for successive deals, Marquez added, the choice of lead manager within the team will be rotated to a second member, with the other two serving as co-seniors.
This pool will be chosen by a managers finance committee composed of representatives from the office of the county manager, county attorney, finance director, and appropriate departments, and finance adviser. In making its manager designations for a given deal, the committee will consider "workload, capital strength and adequacy, past compensation, and performance," said assistant county attorney Gerald Heffernan said.
By the end of the three-year period, the managers' committee will "make its best effort to equalize compensation" between members of the pool, according to the ordinance. In addition, no one underwriter can serve as lead manager on issues totaling more than $2 billion during the three-year period.
The pool itself will be selected following a request for qualifications process that must be approved by the commissioners, according to the ordinance. All underwriting firms "licensed to trade in municipal securities" are eligible, with the exception of firms serving as financial adviser to the county.
The ordinance further specifies that at least one member of each three-member team must be either a regional firm with its primary corporate headquarters in Florida, or a minority-owned firm.
When choosing co-managers for each of the large deals, according to the ordinance, the managers' committee will chose "through a rotation from the County's certified lists of black, Hispanic, and female-owned, disadvantaged, and local underwriting firms maintained by the Department of Business and Economic Development."
In determining this rotation, the committee will consider workload and past compensation. The number of firms rotated into a transaction can be reduced if "an insufficient number of firms are on the certification lists."
The certified list will also be the basis for a three-manager pool of underwriters from which a senior manager and two co-senior managers are chosen over a three-year period for county bond deals $50 million or less in size.
The senior managers and two co-seniors will be chosen through the same process as that used for the larger issues. Co-managers will be chosen using the same criteria as that for larger deals.
On deals exceeding $50 million, each underwriting team shall include an additional five to 11 underwriting firms prepared to serve as co-managers.
Once underwriting teams are designated, a complex allotment schedule will determine the amount of bonds each member can take down for these larger deals.
For deals of up to $200 million, the bookrunner can have 40% of the allocation, and each senior co-manager, 17.5%, with a five-person group of co-managers receiving 5% apiece. For deals from $200 million up to $300 million, the senior manager gets 34%, with co-senior managers receiving 15.5% apiece, and seven co-managers, 5% each.
On issues between $300 million and $400 million, the senior gets 30%; co-seniors, 13.85% each; and nine co-managers, 4.7% each. Finally, for financings exceeding $400 million, the lead manager receives 27% of the bonds; co-seniors, 11.75%; and an 11-member co-manager group, 4.5% apiece.
The rule's approved Tuesday revised an earlier draft that had stipulated a five-year, rather than three-year, period for selection of the pools. Earlier proposals had also further subdivided underwriter selection according to three categories of debt: aviation, water and sewer, and all others.