New York City has been one of the most active issuers in utilizing pre-sale retail order periods in city-related bond financings.
In 1994, New York began using retail order periods to sell the debt obligations of the city and NYC-related financing entities.
Issuers should realize that for retail order periods to function appropriately over time, there is a need to "police" valid retail orders.
The maturities most popular for retail order periods are 10 years and shorter.
NYC RETAIL ORDER PERIOD AVERAGE STATISTICS Tax-exempt Fixed-rate Debt Obligations ($ millions) GO TFA [*] GO+TFA Average length of retail order period (days) 2.6 1.7 2.4 Average total fixed-rate obligation $708 $530 $688 Day 1 $115 $75 $109 Cumulative through Day 2 179 99 165 Cumultative through Day 3/4 217 99 197 % Retail volume (of total fixed) 33% 19% 29% Maturity in year 1 through 5 $68 $41 $63 Maturity in year 6 through 10 49 31 46 Total year 1 through 10 117 72 109 % Maturity 1 through 10 (of total retail) 55% 71% 58% Reflect averages over all 32 deals (6 TFA, 26 GO) with retail order periods, from November 1994 to June 1999.
Retail pre-sale order periods have worked for New York City, but would they be as effective for every issuer?
Retail pre-sale order periods by definition require the appointment of a senior book-running managing underwriter and a management group to manage the retail order period and take retail orders in the context of a negotiated sale.
Consequently, retail order periods can be effective for double A and triple A rated issuers, but not in all market conditions and in all states.
Retail order periods are much more important in markets such as those that have existed for most of 1999, when most institutions (including the bond funds) have not been large net buyers relative to their past.
A retail order period is a period of time before the formal bond pricing with institutional investors when the issuer accepts bond orders only from retail investors.
An issuer planning to have a retail presale order period should ensure that either the book-running senior manager or key firms in the management group (preferably both) have the capability to sell to retail investors.