A few years back, we thought there might be a weekly newspaper, or a newsletter, or a publication of some kind, that we could aim at municipal bond issuers. Out of those thousands of issuers, we figured, surely there must be a few thousand who would be interested in such a venture.
After a really hard look at the numbers, however, we found that, no, there weren't. Because after you get past the top 1,000 issuers, most of the rest of the finance officers who are in charge of selling bonds simply buy help when they need it, either in the form of financial advisers, underwriters, or bond counsel. For a publisher, the thing to beware of was the illusion of opportunity.
But those days may be ending. An unintended result of the New Jersey Bond Scandal of 1993 may very well be that a lot more appointed, rather than elected, finance officers take charge of selling a municipality's securities, as issuers look to divorce politics from public finance.
Another result will be that a lot more finance officers will take a lot more interest in exactly how their bonds are sold, whether at auction or through negotiation.
This brings to mind the story of the banker making a presentation to an issuer on why a refunding was called for. One of the pols, perplexed by the economies of the thing, asked: You mean, we'll issue more bonds to refund this outstanding debt, and still pay less? How can this be? The banker, a man with a puckish sense of humor, replied: Magic! in the dawning Era of the Informed Finance Officer, scenes like this may become a bit less commonplace.
In order for that to happen, however, public officials are going to have to learn a lot more about the market. The best place to start would be Project Finance for Water and Wastewater Systems, by Michael Curley (Lewis, 242 pp., $55).
Don't let the title of the book deceive you. The book may be aimed at the thousands of water and wastewater systems across the nation, but it provides perhaps the most detailed, nuts-and-bolts treatment of project finance available anywhere. The only comparable volume I have seen in the past decade, in terms of concentrated focus, would be Wilson White's 1985 examination of a competitive bond sale. Basics.
In a tight space, considering the subject matter, Project Finance provides more information and practical advice on public finance than any other comparable book that has come across this threshold, and I like to think that I've seen all the modern ones. Project Finance is not an easy read, although the author, Mike Curley, writes in a conversational tone. it is not an easy read because, unlike every other book on the subject, Project Finance contains and explains all of the mathematics that go into borrowing money.
Curley writes in his introduction: "Many people think that finance is a subject akin to black magic. Rubbish. There is no magic at all. It is a straightforward science, and a fairly simple one at that. Even for people who think they are ~not good with numbers.'"
The author then tackles the bricks and mortar, as he begins a course in what can only be described as municipal finance masonry.
It has been almost a decade since I first met Mike Curley, a lawyer who at the time was launching an industrial development bond insurance company, IDBI Managers. He is one of a handful of brilliant fellows I have met in this market, and in this book he proves a very effective teacher. He writes about project finance with the perspective of the banker, financial adviser, and insurer, the empathy of a former public official, and the zeal of a winning coach.
Curley divides his book into three parts. The first analyzes debt service. compares costs, and illustrates how to convert dollars into rates, and rates into dollars. It then walks the reader through both the annual payment method and the total payment method of evaluating project financings. The second section details actual cost, and how it can be affected by a variety of factors, including rates, term, and delay. The final section covers how to fund projects through the municipal bond market, bank loans, federal grant and loans programs, and state revolving funds.
The last two parts of the final section are the only ones dealing specifically with water and wastewater projects. They are the only pages inapplicable to general project finance. Which means that all of those readers who want to know how to construct a debt service schedule, or want to understand the time/value theory of money, or how to figure out which proposed financing is best for them, gets a good value for the money.
Public officials will obviously get a lot out of such a book, although Curley would be the first to say that the book is no substitute for a good financial adviser. As a baseball coach might say, "Take two and go to right, " Curley would say, "Hire a good financial adviser and sell competitively." Project Finance also can be read with a great deal of satisfaction by newcomers to the bond-issuing business.
Right now, the public finance side of the municipal bond business is divided between rainmakers and numbers crunchers. This may be, for now, a fairly efficient distribution of expertise. But if politics plays less of a role in the municipal bond market of the '90s, complete bankers will have to learn more about the science of finance. and less about the writing of checks. Project Finance is a good start.