On April 28, Zions Direct closed its first municipal bond offering on the auctions platform. At its close, participants had bid on nearly nine times the offered amount on the Manatee County, Florida bond with the highest bid asking for a premium price of more than 1½ % above the coupon. Because of the benefits of the modified Dutch auction model, all winning bids got a better price than the coupon amount as each walked away a yield greater than 4.251% on these seven-year municipal bonds.
For those taking those possible tax advantages on this bond, if we assume a 35% tax bracket, it would take a yield of 6.53% on a taxable security in order to get a similar after-tax equivalent yield.
As of this writing, Zions has added two more municipal bond offerings to its auctions platform, giving credence to the statement given last week by Chris VanDam of Zions Direct when he mentioned, “It is expected that municipal bond auctions will be an ongoing and welcome addition to our auction platform.”
This offer has showcased Zions’ direct-to-consumer system, which has given each of these self-directed investors access to security offerings, in which they not only influence the price but also avoid the typical intermediate steps and commissions. It is also a welcome alternative in this current economic climate; Zions Direct Chairman David Hemingway noted, “With the addition of municipal bonds on Zions Direct’s auction platform, we are providing individual investors another element of control in a volatile market.”
In addition, two days later, Zions closed on the initial offering of Zions Bancorporation Senior Notes. Although the auctioned amount was set at $500,000, bidders took advantage of the “Buy Today” option in this auction and in total walked away with nearly $1,000,000 in securities. This first Senior Note offering in more than six months was well received—the auction had seventy-two bidders supplying nearly of one-hundred bids with twenty-two buyers using the Buy Today method. And, like the first Senior Note Auction last March, bidders actually determined that they were willing to buy these securities at a premium price above the offered 5.5% coupon.
All evidence points the continuing success of this auction-based method to selling and pricing securities—an innovative customer-centric approach that is particularly refreshing during this time of economic instability.
*Artwork from Amanda Woodward under Creative Commons license at Flickr.com.
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