Private Placement information
Public Group
active 16 hours, 39 minutes ago
Group Leadership
- Group Administrators
-
-
Corporations seek new financing for a variety of reasons, including the need to increase working capital, repay debts, purchase fixed assets or other companies, or repurchase the firm’s own shares.
Very few companies generate enough cash internally to satisfy all their cash needs. They must often borrow to fund activities such as additional research, expansion, and growth. Even a profitable company must seek external funds to expand and compete in an increasingly competitive global marketplace. This new funding is provided by the market if the company can prove that its plans are viable and that such an investment sufficiently compensates the investor for the risk involved.
Companies considering a new issue must also consider the following decisions:
» The types of securities to be issued
» The timing in bringing the issue to market
» The issue price, coupon rate, and underwriting fee
» The proportion of the issue that will be offered to institutional and retail investors
Debt financings usually occur through a negotiated offering. With this method, a firm’s management negotiates with a dealer on the type of security, price, interest or valuation multiple, special features, and protective provisions needed to market a new issue successfully. The issuer choses a lead manager, usually an investment bank, to manage the entire issue. The lead manager can nominate an issuing syndicate made up of other investment banks. When choosing the corporation’s lead dealer, a corporate issuer considers the dealer’s reputation for providing various services. These include advisory services on timing, amount, and pricing of an issue, issue distribution, after-issue market support, and after-issue market informational support. Corporate issuers attempt to engage a lead dealer with a better reputation because it usually results in both better market acceptance of the issue and a cheaper financing for the issuing corporation. When negotiations for a new issue of securities begin between the dealer and corporate issuer, the dealer normally prepares a thorough assessment of the corporation and its industry. The assessment includes the corporation’s position within the industry, financial record, financial structure, and future prospects. As well, all risk factors associated with the industry and the company are closely observed. The resulting report is sometimes referred to as a due diligence report. Often, the assistance of one or more outside consultants or experts in the appropriate fi eld is required. Such experts may include engineers, geologists, or accountants. After the study is conducted, the dealer decides whether it wants to continue to negotiate to be the lead in the proposed offering.
The Prospectus
A prospectus provides a detailed description of the securities offered and of the issuing corporation, including its history, operations, management, risk, and audited financial statements. The basic principle governing prospectus requirements is “full, true, and plain disclosure of all material facts relating to the securities offered”.
The following items are some of the more important inclusions required in a prospectus:
» Details of the offering (e.g., offering price to the public, plan of distribution, and characteristics of the security)
» What the company plans to do with the proceeds from the issue
» Information on the business and affairs of the issuer (e.g., history, operation details, directors and their history, and legal proceedings)
» Factors affecting an investment decision (e.g., risk factors and income tax considerations)
» Information on promoters, principal security holders, and interest of management in material transactions
» Financial information (e.g., the company’s share and loan capital structure, operating results, and debt)
The Financing Process
Step 1: The Issuing Company Sells the Bonds to the Financing Group
Step 2: The Financing Group Sells the Bonds to the Banking Group
Step 3: The Banking Group Allocates the Bonds to the Dealers