OKLAHOMA CITY -- In the wake of several municipal market scandals, the Oklahoma Turnpike Authority held a special meeting yesterday to discuss selling at least $1.6 billion of bonds competitively.
Authority members are calling it the largest bond sale in the agency's history.
The meeting featured a presentation by the authority's financial adviser, Evensen Dodge Inc., describing the pros and cons of a competitive sale of upcoming authority debt as well as the issues surrounding a negotiated sale.
Executives from the firm described the presentation as a primer on the two selling techniques. They told board members about everything from the parties involved in bond sales to the general criteria issuers use in selecting selling techniques for municipal debt.
About 70 people, many of them bankers from large New York firms and some regional firms, attended the meeting.
Daniel L. Wiles, a vice president of Evensen Dodge, told the audience that the presentation might offend the intelligence of some of the bankers in the audience. "This will be the equivalent of Vince Lombardi walking into the locker room and saying, 'This is a football.'"
The discussion comes at a time of unprecedented scrutiny of municipal market practices. The scrutiny --sparked by the federal investigation of bond scandals surrounding the New Jersey Turnpike Authority refunding, allegations of conflicts of interest concerning New York City, and undisclosed conflicts of interest involving bonds issued by the Massachusetts Water Resources Authority -- has called into question the processes by which offerings of municipal bonds are awarded to underwriters.
In addition, several issuers are now debating whether to sell more of their debt through competitive sale. In the spring, New Jersey Gov. Jim Florio, in the wake of the federal investigation into the turnpike refunding, banned almost all future negotiated state and state agency bond sales.
The Municipal Securities Rulemaking Board next Monday will offer draft language of its proposal to bar municipal bond dealers from making political contributions to state and local officials to try to influence the syndicate selection process.
During yesterday's meeting in Oklahoma City, executives at Evensen Dodge told turnpike board members, including Gov. David Walters, that one advantage of a competitive sale is that it is "generally not subject to the political process."
Walters, at the moment, faces intense scrutiny by a grand jury over his political fund-raising activities.
In issuing bonds competitively, politicians have almost no leverage to extract campaign contributions from bankers competing for lucrative underwriting positions.
The executives from Evensen Dodge also said that the negotiated sale process can save issuers money because the sale allows underwriters to pre-market securities and includes complicated, cost-saving financial structures, including derivatives.
These techniques, the executives said, help drive down interest costs, particularly on large deals sold by weaker market credits.
The Oklahoma turnpike's bonding plan is part of a program proposed by Walters to build turnpike projects in the state.
Turnpike board officials at yesterday's meeting said it is too early to say how and when the bonds will be sold. They said a feasibility study on the proposed transaction has yet to be completed, and the board has yet to put its final stamp of approval on any sale.
James C. Orbison, chairman of the seven-member board, said the authority, if it approves the issue, will probably issue the bonds late this year or early next year.
But several signs emerged yesterday suggesting that authority officials are leaning toward approving the issuance. The board, for example, authorized the issuance of requests for proposals for bond underwriters. The requests will be mailed, however, with a note announcing that underwriters' services may not be needed if the authority chooses to issue the bonds through a competitive bid.
During the presentation, Wiles and Wayne S. Burggraaff, a principal and senior vice president at the firm, gave basic information on competitive and negotiated bidding. They made no recommendation to the board, merely giving a primer on general market rules on the selection of bidding procedures.
After the meeting, Orbison said he is leaning toward a negotiated sale because he believes the authority can save money that way.
But he added that several recent bond scandals, including those in New Jersey and Massachusetts, spurred him and the other board members to at least consider a competitive sale. Orbison said during the meeting that Gov. Walters is favoring a competitively bid deal because of the scandals.