The deliverability and pricing of public bonds are normally only firmed up shortly before actual issuance (i.e. a few days prior to financial close) as the underwriting of bonds by their arrangers is not common practice. An element of deliverability risk will therefore remain with the Contracting Authority in a way which would not be the case in a bank financing. The position can be different in the private placement market, although this will depend on investors being willing to hold pricing during a bidding process. Contracting Authorities will often find it difficult to seek fully committed bond financing offers at bid or final offer stages and commitments obtained from banks at bid or final offer stages may be - or appear to be - stronger than those obtained for bond solutions. It should however be borne in mind that, whilst margins for bank debt may be fixed and commitments (which will generally have a certain level of conditionality attached) can be obtained from banks in relation to the margin, the underlying swap rate which will affect the all-in cost payable by the Contracting Authority will only be fixed at financial close. Therefore, whilst deliverability risk may be somewhat greater in a bond solution, elements of the final cost of a bank solution equally remain a Contracting Authority risk until financial close.
Contracting Authorities can obtain some comfort that a public bond solution can be delivered by requiring bond arrangers to provide letters of support at bid or final offer stages and relying on the expert opinion of the Contracting Authority's adviser. The terms of the bond arranger support letters should therefore be set with care. In addition, at final offer stage, to help in mitigating the deliverability risk, it is advisable that the Contracting Authority require bidders to obtain a "pre-rating" on their proposed financial structure. The Contracting Authority may also ask bidders to (i) submit evidence that a minimum rating sufficient to drive investor demand is achievable (e.g. investment grade - that is, BBB- or higher, or even A) and (ii) accept the risk of any price increases associated with failing to eventually secure the targeted rating. As flagged in Section 9.3.3, Contracting Authorities may need to compare bond proposals from several bidders.