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South Brunswick’s Internet auction of $34 million in education construction bonds on April 1 was the first online public financing for a New Jersey school district, but there was no pioneering spirit in selection of bond counsel. The district picked Newark’s 23-lawyer McManimon & Scotland, the firm New Jersey public issuers choose most often. In 2003, it placed first in three quantitative categories in which municipal bond counsel are ranked: total issues, market share and total par value. It was the firm’s second straight year at the top. McManimon & Scotland shepherded 137 issues to market in 2003, compared with 51 by second-ranked Wilentz, Goldman & Spitzer of Woodbridge. The par amount of McManimon & Scotland’s issues totaled $2.3 billion – 14 percent of the market – compared with $2.1 billion and 12.4 percent of the market held by West Orange’s Wolff & Samson. And the rankings, provided at the Law Journal‘s request by Thomson Financial, an affiliate of The Bond Buyer, show McManimon & Scotland not only repeating its 2002 top-place showing but widening its lead. The firm was counsel on 53 more issues than Wilentz, Goldman in 2001, 68 more in 2002 and 86 last year. See related chart for a full comparison. Partner Edward McManimon III says of his competitors, “there are a lot of them in aggregate and they do well. We just do our thing.” The rankings also show: � Wolff & Samson, whose name partner David Samson was Gov. James McGreevey’s first attorney general, finished second in market share even though it was in the middle of the pack in number of issues. Among the firm’s 13 deals was the Big Daddy of public financings in 2003: the $2.4 billion issue behind the merger of the Garden State Parkway and the New Jersey Turnpike. � Wolff & Samson’s co-counsel on the roadway issue, Trenton’s Capehart & Scatchard, leaped into fifth in par value from 11th in 2002 and 17th in 2001, when it had a mere 0.5 percent of the market. When firms are co-counsel, the survey assigns each 50 percent of the par value. Partner Brian Kowalski says Capehart & Scatchard has made an effort to expand the practice in the past five or six years and has five lawyers in the department, two full time. Clients include the Burlington County Bridge Commission and the Bordentown Turnpike Authority. � Two halves can be better than one. In 2002, Teaneck’s DeCotiis, FitzPatrick, Gluck & Cole ranked fourth in par value with $890 million. Now, partner Michael Gluck and several colleagues have launched their own firm – Gluck, Walrath & Lanciano in Trenton – and both firms do bond work. In 2003, the separate partnerships handled issues worth a total of $1.06 billion, with the Gluck, Walrath operation holding a slight edge in market share over its former partners. At the time of the split, both sides insisted it was amicable and that there was plenty of work for both firms. Last week, DeCotiis, FitzPatrick partner Stephen Pearlman offered an illustration. On a $45 million school bond issue for Morris County, one firm was bond counsel and the other represented the underwriter. � The number of issues handled by bond counsel, which edged upward a mere 2 percent from 2001 to 2002, zoomed 41 percent in 2003. That was because issuers took advantage of historically low interest rates to refund existing issues, says John Scally Jr., a partner at McCarter & English, third in market share. � The survey doesn’t show how many of the 557 issues handled by bond counsel were sold by Internet auction, but conversations with bond lawyers suggest that such sales will be, as it were, the wave of the future. “Yes, that’s a clich� but it’s a fitting clich�,” says William Mayer, a partner at DeCotiis, FitzPatrick. Mayer, McManimon, Scally and Kowalski say bond counsel fees aren’t likely to be affected by online auctions because the legal work is almost the same as it is for traditional in-person bidding. “We still have to do the same things,” McManimon says. Adds Scally: “The legal considerations are still there and the fundamental opinions are still there.” Cyber-Bidders But e-sales are terrific for issuers because they have the potential of expanding the pool of bidders, and greater competition tends to drive down the interest rates offered by the bidding underwriters, the lawyers say. Before last year’s amendments to local bond law, N.J.S.A. 40A:2-1 et seq., representatives of underwriters seeking to bid on bonds would have to deposit a good faith check equal to 2 percent of the bonds and the bids would be opened and announced at a sale. Bidder representation in person was mandatory. In a traditional bond sale, preliminary statements are printed and mailed to up to 750 or so financial institutions that claim to have an interest in bidding. Yet for the smaller issues in particular, only five or six institutions will show up with bids. Under the new statutes and rules, the preliminary statements can be posted on the Web site, saving a few thousand dollars in printing and mailing costs. The bidders can obtain a surety bond rather than put up 2 percent deposits, and there’s no need for the bidders to attend the auction. They can bid at their desks. McManimon mentions two of the companies that run online bond bidding sites, Grant Street Group and Parity, a subsidiary of Thomson Financial. He says he likes Grant Street, which has a system for e-Bay style competitive bidding rather than a system that merely mirrors the sealed bid process. After the bids are made, each institution knows which place it is in, but doesn’t know the size of the other bids. So if an institution’s bid is in, say, second, third or eighth place, it can re-submit until it is the low bidder or it drops out because it feels the price has gone too low. Typically, if two minutes elapse after a bid, that bid is the winner. The April 1 bidding for the South Brunswick school district, beginning at 11 a.m., illustrates how the system works. Four institutions signed up to compete � Citigroup Global Markets, Wachovia Securities, Merrill Lynch and Commerce Capital Markets. Merrill Lynch bid first at 11:09, and six minutes later it was over. Citigroup won with a 4.36 percent bid, Merrill Lynch was second with 4.44 percent and Commerce Capital finished with 4.53 percent. Mayer, at DeCotiis, FitzPatrick, says an online auction for a $253 million state certificate of participation issue for transportation equipment leases attracted six bids in a matter of seconds. The law allowing municipalities to sell bonds online went into effect about a year ago, but amendments to school law, Title 18, allowing boards of education to sell online, is only two months old and the regulations permitting a school bond sale with a surety bond rather than a 2 percent deposit are still being drafted. Once those rules are adopted, school bond sales should attract more bidders, as nonschool sales already are, McManimon says. “What this process does is expand the marketplace,” he says. “Bidders can now do this by sitting at their desks, logging on and posting bids.” Except for certain traditional bidders in New Jersey, like Commerce Capital, Merrill Lynch and the banks now part of Wachovia, bond institutions outside the area “don’t bid because they don’t want to get someone to go to the sale with a good faith check,” McManimon says. The abandonment of that requirement is sure to attract more bidders, he says. While the cost of hiring counsel isn’t likely to change, issuers like South Brunswick will save up to about $5,000 in out-of-pocket expenses. But McManimon concludes, “The real saving is going to come from the changing of the market.”

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