Municipal Bond Costs of Issuance

Abstract

My research team collected cost of issuance information from Official Statements representing over 800 bond issuances since 2012. We found that costs of issuance including underwriter discounts averaged 1.02% of bond principal. Further, we found substantial variation in the sample, with six California school district issuers incurring costs in excess of 8.5%. To determine the composition of issuance costs we sent public records requests to a subset of issuers, receiving 180 responses. The four largest contributors to total issuance costs were underwriter discounts, legal expenses, financial advisor fees and rating agency charges – in that order. We argue that some combination of increased price transparency and intervention from higher levels of government could substantially reduce issuance costs faced by local governments, especially smaller ones.