144A bonds fall under SEC rule 144A issued in 1990 to facilitate the resale of unregistered securities, in a more liquid and efficient institutional resale market. Trading of these debt securities is limited only to between qualified institutional buyers and not individual investors, who cannot be qualified as institutional buyers under Rule 144A.
Qualified institutional buyers, usually includes a vast majority of institutions that can be regarded as accredited investors under the SEC securities laws. Under the rule, the institutions can engage in transactions the SEC would normally rate too risky for the general public.
Institutions can make trades even without proof of registration of the underlying issuer by the SEC.
If your company plans to issue a bond, then you would need to write a disclosure document such as a private placement memorandum (PPM), under rule 144A. The terms of each bond issued will have the maturity date, interest rate, interest payment interval and other terms.
Since a PPM is technically a legal document, it is important that it protects you the entrepreneur by ensuring it satisfies the Security and Exchange Commission regulations, and also helps you gain the trust of interested qualified institutional investors.
2. Multiple conference calls held
3. Lending company analysis and pre-underwrites
4. If Lending Company issues a positive opinion in 1-2 weeks,
5. Lending company is engaged and you pay underwriting fee
6. Bond is then created
7. You get the funding
Who can draft a PPM? You can hire a securities lawyer, investment banking consultant, or a professional PPM writer to draft the document for your company.
Though some of them charge a lot of money, it is important that you select and work with whoever fits within your budget and can write a proper document targeted towards the group of investors, you want to seek funding from.
A PPM is both legally important and strategic in terms of your company's business plan. When you want to attract investment as a startup, for instance, you should consider having a PPM whenever you visit venture capitalist forums or solicit investors over email.
And while using standard elevator pitches and executive summaries are good, a professionally drafted PPM document will help speed up negotiations, make you look prepared and improve on the introduction and investment interest in your business.
Not having a PPM though not an end to your funding request, can slow down negotiations and block investments making your business look unprofessional.
Before writing a PPM, you need to know what your potential investors are looking for so that you can focus on creating an attractive document, specifically targeted at the group of institutional investors you are seeking funding from. A good private placement setup is all you need to get investments.
- Lender funds 99% of total project cost (only 1% down payment needed)
- No funding cap ( loans from $1 Million USD to $500 Million USD or more)
- No personal guarantee required
- No loss of project equity
- Turn around time (closing timeline) is between 90-120 days
- Flexible repayment terms offered
- No asset verification process
- Funding available worldwide (International projects are funded)
- No need for credit verification
- Option to defer payments up to 12-24 months
- Financing can be done in one lump sum
- Low underwriting fee
- No upfront costs to borrower other than third party reports
- Costs of third party reports reimbursed at the time of funding
- Up to 30 years amortized, 4.5% - 8.00% Interest rate only during construction
- No prepayment penalty
Limited to institutions and not individual investors
PPM requirement and prohibitive third party costs and fees
All company assets used as collateral for the loan
What projects can be funded with a 144a bond?
Stabilized Real Estate
Oil and Gas
Major Business Acquisition/Expansion
Medical Practices (Dental, Veterinary, Ophthalmology and all Surgery Practices)
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