If you think the municipal bond business only gets exciting when a big issue goes into default, you need to know about the People's Stadium bonds.
In truth, they are nothing more than generic-sounding state general-fund appropriation bonds. But RBC Capital Markets of Minneapolis managed to create a little marketing buzz around a Minnesota Vikings purple certificate of ownership for some of them.
The certificates go to buyers this week, wrapping up the bond sale that will help finance the stadium project now underway in downtown Minneapolis.
In a business that doesn't have a lot of room for marketing creativity, doing anything remotely clever is remarkable enough. But the people's bonds idea also shows why locals should get hired to sell this kind of financing, as no New Yorker would have come up with it. And no New Yorker can match the locals' ability to place bonds with Minnesotans.
It was Cory Hoeppner, a public finance investment banker who has been with RBC Capital Markets since February 2008, who proposed a People's Stadium bond as RBC competed to be lead underwriter.
He explained that he first test-marketed his idea inside RBC. What he was really hoping to do was to capture a little of the finance magic that happens across the river with fans of the Green Bay Packers.
There usually isn't much a Vikings fan can envy when looking into Packers territory other than the Packers' ownership structure and maybe the team's peerless quarterback. The Packers get a great deal of local support just by having the NFL franchise owned by thousands of folks living in the community rather than a handful of out-of-state real estate deal guys.
In the recent past, Green Bay Packers Inc. easily raised enough through a common stock sale to fund renovations to the team's stadium, despite plain-language warnings of the stock's essential worthlessness as an investment.
As a line from the Packers' 2011 offering document put it, "It is virtually impossible for anyone to realize a profit on a purchase of common stock or even to recoup the amount initially paid to acquire such common stock."
The deal sold so well that the team bumped up the total shares offered.
But what Hoeppner was looking at was selling a real investment, a genuine, AA-rated State of Minnesota bond, and he needed a way to emphasize its connection to the Vikings.
RBC can't even sell an actual bond, of course, if that term means a paper document that the granddaughter of an investor can one day pull from a safe-deposit box and hold in her hands.
It's long been the case that bonds are "book entry." Buy some bonds, and some computers whir and blink for a nanosecond and evidence of the bonds' ownership shows up in a brokerage account.
That's not any fun.
What the RBC team came up with was a certificate of ownership, with a big Vikings logo right in the middle. In the lower left-hand corner it says, in type that is not particularly fine, that it's nothing but a commemorative document and not evidence of an investment at all.
RBC made the certificates available only to its clients. It held a reception and had its bond trading desk that is dedicated to small investors regularly communicating with other RBC offices. More importantly, RBC did what it could to make the bonds more appealing to Vikings fans.
Bond issues are usually sold as a series of bonds, and in this deal the first bonds mature in June 2015, the last ones in 2033. The first 4 percent yield maturity, as it turned out, was 2033. Those are the bonds they picked for commemoration.
It's also typical in the bond business to have an interest rate of, say, 4 percent, sold to provide a return that isn't precisely 4 percent. That means that bonds can sell at either a premium, more than 100 cents on the dollar, or at a discount.
To keep it simple RBC made it a 4 percent bond sold to yield 4 percent — making these the only bonds in the tax-exempt portion of the deal to have the interest rate precisely match the yield, and thus sell at 100 cents on the dollar.
Hoeppner also suggested making the people's bonds more affordable for everyday fans by dropping the usual $5,000 minimum denomination down to $1,000. Hoeppner said he can't think of the last time a bond was issued in minimum denominations of $1,000.
"We loved it," said Commissioner of Minnesota Management and Budget Jim Schowalter. "It was part of the reason that RBC won a really competitive process" for picking the lead underwriter on the bond issue.
After a delay of game due to litigation, the deal sold well in January. Recognizing that Vikings fans live in the Dakotas and Iowa, too, RBC made them available to non-Minnesotans.
Hoeppner said 159 certificates of ownership are to go out this week, representing about $3.25 million of the $7.5 million available of the 4 percent, June 2033 maturity. Hoeppner said the largest personal certificate order was for $200,000. "I see a couple of 20s on the list," he added, "and lots of ones and fives."
John Taft, the CEO of RBC Wealth Management in the United States, said the first criterion in picking an underwriter for any deal is the capability to get the bonds efficiently sold, "and there isn't anything local about that." RBC and Piper Jaffray have that capability, but so does JPMorgan.
Another factor is the ability to sell a lot of bonds to local individual investors, in whose accounts they will likely stay until they mature. That can improve stability and liquidity in the market for any issuer's bonds.
That's the reason to work with locals, Taft said. While RBC may be part of a global bank based in Canada, its U.S. wealth management group headquarters and lots of clients are in Minnesota. It was Minnesotans sitting down with Minnesotans describing how they planned to sell bonds to Minnesotans — and the odd Vikings fan in Iowa.
"I'm not sure People's Bonds will work for everything," Taft dryly observed.
You mean there wouldn't be a certificate for bonds financing a new municipal solid waste facility?
"If you want a certificate of ownership for a solid waste facility bond," Taft responded, "I'm happy to get you one."