Bond issues : a private placement perspective

Abstract

Bonds constitute one of the instruments which companies use to raise finance and obtain credit. The juridical nature of bonds is that of debentures. Their features contrast to those of equity and other forms of debt in particular, loans. Variations in bond issues depend on how their terms are tailored, which terms may be designed to satisfy the needs of the issuing company and concurrently attract prospective bondholders. The extent of the variations in the terms may be restricted by certain legal provisions applicable thereto or by certain uncertainties arising from conflicting legal provisions. Private placements of bond issues, as opposed to public offerings, may have a number of advantages for both companies and bondholders. They act as an alternative way of raising finance or obtaining credit when a company does not wish to obtain further bank loans, or where the same company has already made a public offering and does not deem it feasible to make another offer to the public. A comparative evaluation of the meaning of a private placement is sought by reference to foreign legislation and case-law. The Maltese law definition of what is not deemed to be a public offering and is therefore a private placement, currently being proposed is also analysed. The salient Maltese law provisions affecting privately placed bonds are critically examined, and suggestions made for the streamlining of the treatment of bonds. Other suggestions are inspired by the importance of enhancing the currently applicable legal framework in order to encourage and facilitate the private placement of bond issues.