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.
LATEST FINANCE HEADLINES
State and Local Health Spending Flat in First Year of Medicaid Expansion1 minute ago
Michigan Governor's Budget Focuses on Flint Water and Detroit Schools11 minutes ago
The Private Tech Sector Goes Public19 hours ago
Obama's Last Budget: The Breakdown for States and Localities1 day ago
Pennsylvania Governor Prepares New Budget While Still Struggling to Pass This Year's2 days ago
White House Asks Congress for $1.8 Billion to Combat Zika2 days ago