is a way of selling securities to a pre-arranged list of investors and organizations, rather than selling them publicly in the form of trading on the open market.
Private placement of securities is a definite alternative to IPO for companies that need to raise additional capital for their needs. As a rule, large individual investors, insurance companies, investment funds, banks or other financial institutions are invited to participate in private placement programs.
One of the main advantages of a private placement compared to an IPO is the simplified system for conducting it. Private placements are overseen by a relatively small number of regulators, hence the number of regulations and standards for private placements is minimal. It is also worth noting that with a private placement of a bond, the issuer saves money on obtaining a credit rating from rating agencies, as well as on the services of an underwriter. The disadvantage for the issuer is the necessity to set a higher interest rate comparing to the publicly traded securities due to additional risk fees. Also, a private placement limits the number of investors that can be included into trades, so the total amount raised through a private placement may be lower.
The investor will be interested in private placement, as this is his opportunity to purchase securities with a potentially higher yield, but at the same time, he must be prepared for the increased risks that accompany such securities.
An example of a private placement of a bond: L. J. LINEN, FRN 16dec2024, EUR LV0000850071