Sound Off

Sound Off: Buying school bonds

When the city, county and school board issues bonds, who gets to buy them? Can anyone buy or is it a certain group of people?

David Arteberry of George K. Baum & Co., the firm that advises the Lawrence school district on bond issues, says that when a local government issues new bonds, there is a kind of bidding process where investment firms, banks and other institutional investors bid on the bonds by offering an interest rate. The low interest rate wins the bid. The firm (or consortium of firms) that wins the bid then becomes the bond “underwriter” and sells the bonds to its customers. Those are typically other institutional investors such as mutual funds, insurance companies, investment banks, or sometimes wealthy individuals. An individual who has an account with the underwriting firm or one of its direct customers may sometimes be able to purchase a bond directly. More often, though, individuals invest in bonds through mutual funds or other instruments where they would buy into a pool of many types of bonds from throughout the country. Arteberry said another opportunity may occur when a local government issues “refinancing bonds.” That’s similar to refinancing a house, where the borrower takes out a new loan at a lower interest rate and uses that to pay off an old loan. He said refinancing issues are often done through a negotiated sale, rather than an open bid, and the local government issuing the bonds can attach conditions, such as by saying a certain amount of the bonds have to be made available locally.

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