from The Bond Buyer – Dallas, TX (August 15, 2000)
by Darrell Preston
Kirkpatrick Pettis’ Denver office is establishing an electronic underwriting presence in an effort to give Colorado issuers – that traditionally favor negotiated deals – another format for doing competitive bond sales.
The Omaha-based firm, which launched its electronic commerce effort this summer by hiring two bankers from Bigelow & Co., is planning its first public demonstration of its new system today when it sells about $57 million of bonds for the Arapahoe County Building Corp. The bonds will be sold over the company’s Website, www.kpauction.com, which will allow bidders to adjust their bids during the auction.
Unlike many new online ventures in the municipal bond business, Kirkpatrick is taking the unusual approach of inviting the local news media to watch its first sale because the firm hopes to demonstrate to the public that Arapahoe County can improve efficiency and reduce costs by selling bonds over the Internet. The bonds will be used to finance new county administrative offices and office space to house the sheriff and coroner.
Kirkpatrick made the case in its media invitation that county taxpayers would benefit from any savings from selling bonds on its site.
“We invited all the local newspapers because we wanted people to know about this,” said Chris Blackwood, senior vice president and director of e-commerce at Kirkpatrick.
In some ways the sale marks a departure from the approach of Denver’s underwriting community, which has generally pushed for negotiated sales for most types of debt. In Colorado, a competitive sale is as rare as a snowstorm in July, and nearly every deal is sold through negotiation, with the exception being some bonds sold for the city of Denver.
But in recent years, some vocal opponents of the status quo for negotiated sales have sparked a public debate on whether some issuers, especially public school districts selling insured general obligation debt, would be better served through competitive sales.
While little has changed in terms of the exclusive use of negotiated sales, Blackwood said that he hopes that the new e-commerce venture can encourage more issuers to consider the method of sale and give Kirkpatrick a boost.
“I think this will help move [the firm] up in the rankings,” he said. Kirkpatrick Pettis has traditionally ranked about 50th in underwriting, handling $468.3 million of deals last year that made it the country’s 55th largest underwriter. Blackwood said that Kirkpatrick’s goal is to auction $200 million of bonds during the next year through its Website. The firm also is developing a Web presence to sell its own inventory on the secondary market.
Blackwood said that he expects to see more public school districts seek competitive sales in coming years, in part because so many of them have strong credit histories, insurance, and the strength of the state’s intercept program for guaranteeing payment on school debt.
“It’s becoming more and more difficult to argue that a negotiated structure is best,” he said. “There’s no doubt in my mind that there is more and more public pressure on this issue. You hear it being discussed more and more by issuers. You just can’t stop it.”
Blackwood, who has been pursuing an advanced degree in e-commerce technology and management, jumped ship to Kirkpatrick from Bigelow, where he was an economist, in June, along with Russell Caldwell, an investment banker.
In January, Bigelow launched its own private-label auction site, www.bigelowauction.com, and handled a competitive sale of $38.7 million of open-space sales and tax use bonds for Boulder County. Bigelow’s Boulder County deal was powered by MuniAuction Inc.’s software, making Bigelow the first broker-dealer in the country to host an Internet- exclusive auction on a private-label Website, according to MuniAuction.
Blackwood said that MuniAuction also is powering Kirkpatrick’s site.
But Blackwood said Kirkpatrick is adding a unique twist to its new-issue auction site because rather than waiting until the last minute to submit one bid and waiting for the results, bidders will actually be able to adjust their bids throughout the sale process.
Other competitive sites, Blackwood said, do not offer follow-up bidding. During the bidding, bidders are informed of their own rank but not the rank of other bidders.
“We’re going to allow bidders to see their rank order, because if you put more information in their hands it becomes more like a live auction,” Blackwood said. “This will be new, because most of those who have been in the business aren’t used to adjusting their bids. But what we want is more bidders making more adjustments.”