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:
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.”
Prudential Capital’s Josh Shipley, Ed Jolly, Mitch Reed and Ashley Dexter explain ‘long-term financing’ and how many companies utilize this patient and strategic form of funding.