MuniAuction Hosts First Internet Auction of a Tax-Exempt Interest Rate Swap
February 5, 2001Pittsburgh, PA (February 5, 2001) — MuniAuction, the Pittsburgh-based firm that pioneered Internet auctions of new bond issues, and who recently received a patent on its auction methodology, hosted the first Internet auction of a tax-exempt interest rate swap on February 1. The Commonwealth of Massachusetts conducted the auction on their private label website, www.BidMass.com, created and maintained by MuniAuction. The notional amount of the floating-to-fixed rate swap auction was $496,225,000. The winning bidder was Morgan Stanley Dean Witter with a rate of 4.150%. The cover bid, submitted by Salomon Smith Barney, was 4.248%. The third and fourth place bids were submitted by Lehman Brothers (4.266%) and Goldman Sachs (4.285%), respectively. The swap bids represented an important part of a multi-phase financing plan that included the issuance of $250,000,000 of fixed rate bonds via competitive sale in January, the issuance of $468,420,000 fixed rate refunding bonds on February 1, and the issuance of $496,225,000 of weekly variable rate refunding bonds within the next two weeks.
BidMass recently used the same private label website for two other sizeable financing transactions, including a $400 million one-year note auction last August and a $250 million bond auction two weeks ago. In both cases, the Commonwealth employed innovative auction formats such as: i) a “two-minute-rule” that triggered several two-minute extensions whenever a leading bid was submitted with less than two minutes remaining on the auction clock, thereby giving all other bidders an opportunity to enter new leading bids before the end of the auction extension period; and ii) displaying each bidders rank relative to other bidders (without displaying others bids), to guide them in making appropriate improvements in their bids during the auction. These innovations were not incorporated into the swap bidding procedures yesterday, in recognition of the fact that it was the bidders first electronic swap auction.
“The Commonwealth of Massachusetts is firmly committed to executing its capital markets transactions as efficiently and as competitively as possible,” said Jeffrey Stearns, Deputy Treasurer for the Commonwealth. “Internet bidding is a significant improvement over past practices,” he added.
Myles Harrington, President and Co-Founder of MuniAuction said, “based upon recent inquiries that MuniAuction has received from other prominent bond issuers, who are contemplating similar floating-to-fixed swap arrangements, MuniAuction will host several more swap auctions for bond issuers in the first quarter of 2001.” “This is another important application for our patented methodology,” he added.