This is the first article in a three-part series about the municipal advisory business where we answer frequently asked questions about our profession.
A municipal advisor is a person or a firm that provides financial advice to public agencies (cities, counties, school districts, special districts, redevelopment agencies, housing authorities, public utilities, ports and airports, etc.) and non-profit organizations (private schools, colleges, and universities, charter schools, healthcare organizations, federally qualified health centers, museums, associations, etc.), particularly as it relates to entering into financing transactions and issuing debt in the form of leases, private placements, installment sale agreements, bank loans, municipal bonds, and other securities.
The municipal advisor role was created by the Security and Exchange Commission (the "SEC") in 2014 as a part of the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Municipal advisors are required to act as a fiduciary to the agencies that they serve, fulfilling the duty of care and the duty of loyalty to act in the best interest of their clients.
Municipal advisors are regulated by the Municipal Securities Rulemaking Board (the "MSRB) and the SEC. Each individual Municipal Advisor Representative must pass a rigorous Series 50 license examination that covers a wide range of municipal finance topics. At least one individual within a municipal advisory firm also must pass a Series 54 license exam as a Municipal Advisor Principal.
A municipal advisor assists public agencies in determining financing strategy, including method of sale (public offering or private placement), borrowing structure, timing of debt issuance, financing terms, and other matters related to the issuing of securities or other financial products. Municipal advisors work with the issuer staff and other members the financing team to obtain the best overall outcome for the financing, whether to fund a new project, refinance outstanding debt, optimize pension liability payments, or obtain working capital. After the debt is issued, municipal advisors support their clients in filing continuing disclosure reports and performing arbitrage calculations.
To obtain the most favorable financing terms at the lowest financing cost, a municipal advisor starts by assessing the client’s credit quality, looking into financial trends and projections, reserves, capital structure, and overall objectives of the client. Credit quality is one of the main factors that determine the cost of capital and availability of financing options. A good municipal advisor will proactively work with their clients to identify and correct or mitigate credit weaknesses. Once the financing strategy is determined, the municipal advisor works with the client to select an appropriate underwriter or lender and properly evaluate financing proposals. During the due diligence process, the municipal advisor assists the client in communications with the financial market and implementing policies that assure the creditors that the client is credit-worthy.
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