As more deals come to market year-over-year, the sellside continues to do whatever it can to meet investors' growing demand for different structures and coupons.
The sellside serves two masters: issuers and investors, but there is a combined effort there, said Bo Daniels, managing director and head of public finance at Loop Capital Markets, at the on Wednesday.
"We try to make sure that we always have the issuers' best interest in mind; at the same time, making sure that ... there's always going to be investor demand," he said.
When Loop puts together a deal, the firm's banking side may structure it for a specific part of the curve to appeal to investor interest, according to Daniels.
"A good banker, when they meet with the client, will say, 'Hey, I know you're thinking about this,' but if you're a really good banker, you're saying, 'Hey, let's look at a broader perspective, not just a sale or trade. Let's look at your overall perspective in our capital plan, and given where we are in the curve right now, you may want to think about doing X, Y, Z,'" Daniel said.
It's all about striking a balance between the two parties' needs, he noted.
"There's going to be times where you say, 'We got the structure here and there. We have no demand at this part of the curve. It's a little bit soft. We may have to underwrite at that point or cut it a little bit.' You don't want to do that, but you have to strike that balance and think about it," Daniels said.
For investors, the biggest change over the past few years is the ability to request different types of structures and coupons, noted Mark Paris, chief investment officer and head of municipal strategies at Invesco.
"If the market is, in our opinion, too cheap, we might want a 4% coupon with a big discount. If we want to be a little bit more defensive, we're going to ask for a 5.5% coupon ... because we feel like that's been a better structure in the marketplace and we feel like we're getting pretty good yields," he said.
The investor then has to talk with the underwriter and banking team and say, "Hey, here's where we have X demand, here's where we have Y demand, here's where we may want a shorter call or a pay down feature or a sinking fund," Paris said.
Those conversations happen with the underwriter, and the underwriter, in turn, goes to the issuer and indicates where the demand is, and then it's up to the sellside and issuer to decide if that's in the best interest of the issue, he said.
Not every bond is right for every firm. However, if the deal is appealing enough, the investor may request a change to the structure of the bonds, Paris said.
"It depends on how we can have that dialog with different underwriters, trading desks, who are going to talk to us about how the deal is going to break, so that we know if we really like a deal, if we can structure it, we can get some more bonds, or we can get the type of structure that we want," he said.
Issuers, for their part, have to be comfortable with flexibility because deals can sometimes be accelerated or pulled based on market conditions, John Murphy, director and head of investor relations services at PFM, said at the conference.
"In market, you've got to have a plan A, B, C and D, and then be creative as well, so making sure that you understand what the parameters are if you have to issue in the timeframe, but also know how you can structure it differently to meet that market demand," he said.
For most investors, partnership matters, said Jamie Doffermyre, head of public finance syndicate and origination at Truist Securities.
It's about "being as transparent as possible and not surprising investors. And then sometimes that's going to happen, but I think: what do our investors want to see? They want to be partners with our issuer clients. And when that happens, when we get investors and issuers in a room and talk through whatever challenges they might have, those are magical moments," he said.