Bond Offerings

Bond Offerings

Writing a Note Prospectus or Bond Prospectus for Bond Offerings

The creation of a bond offering document for debt securities, whether it is for private or public placement, can be very complicated. Here at Prospectus LLC, we have an extensive amount of experience, having been at the forefront of thousands of bond offering memoranda. Before explaining in detail the structure of a bond prospectus, it is best to define what a bond or note is.

Basically, a bond or a note is a guarantee on paper that a company will give an investor back his/her initial capital at a pre-determined time in the future with a pre-determined rate of return. This paper states that if an investor invests a specific amount of money, they will receive a certain amount of capital at a certain date in the future. Typically, a bond will be repaid 10 years in the future, and sometimes more. This is called the maturity date, also known as the expiration date. A bond is very similar to a note, the only difference is that a note’s maturity date is usually less than a bond’s. Although this is the proper definition, sometimes notes can have longer maturity dates than bonds.

Maturity Date

The maturity date for a specific type of debt will be disclosed in the prospectus. Unlike equity, debt always has a date when it expires. Take for example a 5-year note that has an annual interest rate of 10 percent. The investor will receive a 5% payment every year for 5 years, and after 5 years, the bond will expire. It will cease to exist.

Interest Rate

As mentioned above, debt has an interest rate, also known as a yield. This means that at each consecutive period of time, the company will pay the interest that they owe. The period of time can be weekly, monthly, quarterly, yearly, etc. These rates for different types of debt change with the industry or business. Rates are also a function of the amount of capital a company wants to generate. As a general rule of thumb, higher interest rates mean that the investment contains more risk. As a result, this means that smaller interest percentages most likely signify a safer investment.

Convertible Bonds and Convertible Notes

Debt can also be convertible, this is a common way for companies to raise capital when issuing debt. A convertible debt security signifies that the note, bond, or debenture will be turned into equity (i.e. shares of the company) at a certain time. Often, however, the holder of the debt security can decide at what point they want to convert their debt. When an investor converts their debt, they are exchanging interest payments from their investment into ownership in the company. There are certain benefits to having equity which often includes voting rights and dividends.


Public Debt Offerings

A lot of businesses, and even governments, engage in the issuance of public debt. To do this, they list their form of debt on an exchange with the hopes that reaching out to the public will allow them to obtain funding faster. Registering debt securities on a public exchange is a fantastic way to expose your company and quickly raise capital need for expansion. However, like all forms of raising capital, a public debt offering document is needed.

Private Placement Note – Private Placement Bond

For the most part, companies that want to issue debt start their efforts by creating private placement notes or bonds. Private placements are not open to the public, and only certain investors and institutions can engage in the purchasing of these debt securities. Although there are regulations and requirements regarding private placement in the form of debt securities, most funding transactions take place in this arena. A prospectus is needed, but for private placement, a private placement memorandum (PPM) will most likely be used.

Please feel free to contact our team. We can help you decide what the best strategy is for your offering. If you want a private placement, or if you want to get listed on a stock exchange, the team at Prospectus LLC can help you along in your process, starting with the drafting of your offering document. Please contact us for a free consultation.

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Bond Offerings

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Bond Offerings

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