Wisconsin issues RFQ to fill bond underwriting ranks

Wisconsin has released a request for qualifications from firms willing to serve as bond underwriters in either a senior manager or co-manager capacity.

The state Capital Finance Office will set up pools of qualified investment banking firms, which it will use to designate underwriting syndicates effective through Dec. 31, 2026.

Clarifications are due by noon Central time on Nov. 29 and bids are due by noon on Dec. 8.

"We aren't seeking a specific number of firms for the senior manager and co-manager pools and will rely on the review team and input from one of our municipal advisors, Baker Tilly Municipal Advisors, in determining the composition of the most qualified firms for each pool," said Capital Finance Director Aaron Heintz.

When assembling underwriting syndicates, Heintz said, the state will not use underwriting pools on a rotational basis but will base its selection on participation in competitive sales of state bonds, performance in those competitive sales and investment banking or other coverage of the state's debt portfolio.

In contrast to the last RFQ, released in 2020, when the prevailing market trend was taxable advance refundings, this RFQ asks firms if Wisconsin should reconsider its metrics for which bonds to refund given current trends.

Specifically, the new RFQ asks firms to analyze the implications of the continued elimination of tax-exempt advance refundings and the issuance of refunding bonds with a tender component.

In 2017, the Tax Cuts and Jobs Act wiped out tax-exempt advanced refundings, and since then, tenders have become a trend to help issuers obtain interest cost savings. In a tender transaction, the issuer buys back outstanding tax-exempt bonds, typically financing the transaction through current refunding bonds which are tax-exempt.

Wisconsin is also facing interest rate uncertainty and statewide challenges that have persisted through the pandemic.

The state now has a $7 billion surplus, one triple-A bond rating and three at the double-A-plus level. But it is still grappling with an affordable housing crunch, an aging workforce and difficulties hiring and retaining top talent, Heintz said.

In May, the CEO of Wisconsin's Housing and Economic Development Authority said the state needs to add 120,000 new rental units to close its affordable housing gap. And in September, Gov. Tony Evers convened a special session of the state legislature to address Wisconsin's labor shortfall.

Per state policy, minority-owned firms should underwrite at least 6% of Wisconsin's  obligations and disabled veteran-owned firms at least 1%.

The RFQ directs firms to explain the best structure of an underwriting syndicate for a $300 million general obligation refunding bond issue sold by negotiated transaction, among other questions. A committee composed of capital finance staffers and other expert state employees will review responses.