What are "private placements"?

Question

I'm trying to learn a few things about finance, and I come across this term. My notes says "only a few sources of borrowing are used rather than the general public". Can anyone provide an example? Thanks!

-julielai loggin in as a guest

MountainHiker · Accepted Answer

julielai,

A private placement is where a company, often a smallcap (small capitalization company), issues shares or debt to a group of funders.

For example:

MH Inc. provides an English translation service around the world. It has a market cap of $20 million and trades on the Toronto Venture Exchange. However, it needs an injection of an additional $5 million. MountainHiker has approached a group of investors for $3 million in equity and $2 million in debt. This offering is NOT open to the public. Instead, it is a private placement. There isn't the traditional prospectus and other associated stuff.

Here, you can read more detailed information [url="http://www.tse.com/en/pdf/Policy4-1.pdf"][/url]

MountainHiker

Julielai · Answer

I see!  Thank you very much!

MountainHiker · Answer

I see!

Said the blind woman to the deaf dog.

Julielai · Answer

Or the visually impaired female to the hearing impaired canine?
(just being politically correct -- that's the way we talk in the office)

I'm anticipating an ugly reshuffling in my office around May/June (hopefully June, knock on wood), so I'm learning a thing or two so I can get "shuffled" to the right place.

I'll be bugging you guys about legal and financial stuff for the next month or two.

Vinodram · Answer

what help do you need from us on the legal or financial areas. I ask this b'cos they are of vast areas that cant be tolds by just asking on these terms...

Anonymous · Answer

0In a private placement you are selling a debt security to a limited number of investors. This debt issue is marketed by an intermediary agent, usually a bank, that brings the issuer (borrower) and the investors (lenders) together. Private placements have the advantage that, for example in the US the company does not need to register the transaction with the SEC, it wíll not need to issue a prospectus and it will not need to obtain a credit rating. This is normally the case in a "public placement" of a debt security (corporate bond) to inform investors about the risks of the risks of the investments.02br
02br
00Private placements can only be issued to sophisticated institutional investors (pension funds, mutual funds, insurance companies) who are able to analyse these risks by themselves. 02br
02br
00The other advantage of a private placement is that the terms of the deal (pricing, maturity) can be negotiated directly between issuers and investors and tend to meet their needs more than public issues.02br
02br
00As private placement investments are difficult to sell on (there is no liquid market), investors will demand a liquidity premium. That makes a privately placed debt security slightly more expensive from an issue's point of view than a comparable publicly issued bond (which can easily be sold by the investor).0-

What are "private placements"?

Top answer

Get the Weekly English Kit 📬

Related Questions