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Abstract: 

This article addresses the private placement of municipal bonds and describes the characteristics that distinguish them from bonds marketed to the general public. It establishes a theoretical “rational expectations hypothesis” that issuers select this sale type to exploit their putative advantages, particularly with regard to the ease of issuance and lack of disclosure requirements. This hypothesis creates an anticipation that riskier, smaller, and poorer credit quality issues are, on average, more likely to be privately placed than other issues all else being equal. The findings are generally consistent with that hypothesis. The final section of the article reports on the authors’ interviews with issuers who chose private placements. The majority of these issuers based their choice on professional advice. Other justifications, such as the anticipation of lower issuance costs or payment flexibility were reported relatively rarely.

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Affiliations:  1: University of Connecticut; 2: University of Connecticut.