Pimco veterans seek to shake up Muni’s old-fashioned loan market

After breaking new ground in exchange-traded funds for Pimco over a decade ago, Manish Dutta and Tammie Arnold set their sights on one of the more opaque aspects of municipal finance.

Their company, Alpha Ledger Technologies, seeks to modernize the market for direct loans to municipalities through a platform based on blockchain, the technology used to verify and record transactions that is at the heart of Bitcoin.

The company’s system allows cities and towns to auction their loans, allowing a large group of investors – such as regional banks – to bid, potentially reducing borrowing costs on these relatively small private financings. . The other advantage is that the system provides an online account of the offers and the transaction – a novelty for localities accustomed to keeping paper files.

This amounts to a change from the “old-fashioned” underwriting process, where the decision to choose a bank and the terms of a loan can be private, said Dutta, CEO of Alpha Ledger. Fifty banks have used the platform, including community, regional and national banks, he said.

“On our platform, it’s an open, direct and transparent market,” he said.

In July, the Poulsbo, Washington-based company, which was founded in 2019, made further inroads when California’s Coachella Valley Unified School District borrowed through its platform. It was one of five lending deals that Alpha Ledger has entered into this year, following two in 2020.

Banks held about $ 197 billion in direct loans to municipalities in the second quarter, according to research firm Municipal Market Analytics. Alpha Ledger wants to enter the arena of public debt – which accounts for the bulk of municipal borrowing – sometime in 2022.

The municipal market, with annual bond and note issues of around $ 400 billion, has proven difficult to disrupt. In one example, Neighborly, a company that tried to sell bonds with smaller pieces than the typical $ 5,000, abandoned that effort in 2019.

Dutta, who worked on technology development at Pacific Investment Management Co., co-founded the company with Christopher Wade and brought in former colleagues like Arnold and Don Suskind, who worked on ETF products at Pimco.

“Nothing but the competition”
Traditionally, with municipal loans, borrowers hire advisors who solicit offers from banks. The municipalities can also apply directly to the banks. With direct lending, officials found they could borrow at rates comparable to bonds without the fees or disclosure requirements associated with public debt offerings.

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Priscilla C. Carnegie