Creating A Bond: Chicago Keeps The Little Guy in The Loop
Chicago is bringing municipal bonds to the masses.
In September, the city began a bond offering targeted to individual investors, not institutional buyers as is common in the municipal market. Other cities have tried making their bonds accessible to individuals before, but according to Mike Smale, a senior vice president with LaSalle Financial Services Inc., which is overseeing the offering, Chicago is the first to exclusively design a bond issue to retail investors.
Features that make the $150 million bond sale friendly to individuals include Web-based purchasing and a low minimum investment. Where most municipal bonds require a minimum buy of $5,000, Chicago has cut that figure to $1,000.
As a result, thousands of investors have acquired Chicago's bonds, compared with fewer than 100 in a typical institutional deal. The larger investor base has had the effect Chicago officials intended: lower interest rates. According to Dana Levenson, Chicago's chief financial officer, city interest rates will end up 15 basis points lower with the investor-targeted offering.
There is a downside to the direct-to-consumer pitch. As Levenson notes, the advantage of traditional municipal bond sales is that they can be completed very quickly, offering sellers instant liquidity. In contrast, an approach that focuses on retail investors raises cash for the city or state issuer in a matter of months rather than minutes.
Still, Levenson sees the potential for a trend. "Possibly what has held cities back is that no one has done it," he says. "My gut is that this will open up the flood gates."
Join the Discussion
After you comment, click Post. You can enter an anonymous Display Name or connect to a social profile.
Open Data Value Framework - 1
Top 10 Open Data Datasets
2014 Open Data Benchmark Report
8 Government Process Replaced by Open Data
LATEST FINANCE HEADLINES
Millionaire Tax Question 3 Votes Shy of Passing Illinois House21 hours ago
The Week in Public Finance: Moody About Ratings, the Worst-Funded Pension and Data Disappointment4 days ago
After Failed Tax Hike, Michigan Finds $400 Million for Roads4 days ago
Kansas Lawmakers May Expand Medicaid If...5 days ago
U.S. House Approves Short-Term Highway Funding6 days ago
Supreme Court Ruling on Maryland's Double Income Tax Could Impact Other States and Localities1 week ago