5.5.1 Documentation Used in Private Placement Transactions
Apart from “direct loans,” private placement bond documents are similar to the bond documents in a public offering, except that with the investor “at the table,” issuer representations and covenants and security provisions tend to be negotiated. If there is an underwriter or a placement agent, there is generally a bond purchase contract or a placement agent agreement. Placement agent agreements are similar to bond purchase contracts, except that the placement agent agrees to use its best efforts to “place” the bonds with investors, rather than agreeing to purchase the bonds for resale.
Investor letters, delivered by the purchasers of the bonds, are key documents in private placements. In its investor letter, the purchaser does the following:
- Certifies that it satisfies the requirement for purchasing the bonds (e.g., that it is a Qualified Institutional Buyer or an Accredited Investor)
- Acknowledges that it has had an opportunity to obtain information with respect to the issuer and the bonds, and has made inquiries as it has deemed necessary
- Acknowledges, as appropriate, that investment in the bonds involves a high degree of risk
- Affirms that it is acquiring the bonds for investment and has no present intention to dispose of any or all of the bonds
- Acknowledges the restrictions on transfer of the bonds