A private placement is the private sale or “issue” of corporate debt or equity securities by a company or “issuer” to a select number of investors. It is another way that you can raise capital, versus selling a publicly offered security or establishing a traditional bank credit arrangement.
Three key features classify a securities issue as a private placement:
The securities are not publicly offered
The securities are not required to be registered with the Securities and Exchange Commission (SEC)
The investors are limited in number and are “accredited”
Traditionally, middle-market companies like yours have issued debt in the private placement market directly with a private placement investor, such as a large insurance company or other institutional investor, or through an agent (often an investment bank), who then solicits bids from several potential investors. Larger transactions ($100 million+) are typically done with an agent. It’s possible for there to be as few as one investor for any issue. A private placement issuance is a way for institutional investors to lend to you in a similar fashion as banks, with a “buy-and-hold” approach, and with no required trading or public disclosures. Historically, banks refer to investments as making “loans,” whereas insurance companies purchase “notes.”