Private placement:

Private placement involves the company to sell the entire issue to a single purchaser (it is generally a financial institution or a wealthy individual) or a group of such purchaser. Contrary to public issue, the company negotiates directly with the investors over the term of the offering.
Financial institutions that invest in private placement are financial intermediaries such as insurance companies, commercial banks or pension funds. They accept money from savers and use those funds to make loans and other financial investments.

As you know, a company can issue debt (that is a contractual agreement by the borrowers to pay) or equity (part of ownership in the company owned by shareholders). In this part we will focus on the private placement of debt issues.

Now we are going to look the advantages of private placement:

The main advantage of private placement is the speed with which the private deal is transacted. Indeed, private placements are not subject to SEC registration requirements contrary to public issues. (SEC registration requires the company to prepare prospectuses and to negotiate with the SEC. All this takes a lot of time. ) This can be explained because persons or institutions are able to acquire on their own the kind of information that registration would disclose. Second advantage: with private placement the terms can be negotiated directly with the borrowers and financing can be consumed quickly. We can negotiate all the terms of the issue, so the exact timing in the market is not a critical problem because it is much easier to deal one investor than with a large number of security holders. Third advantage: it gives flexibility to the company. For example, the actual borrowing does not necessarily have to take place all at once. The company can enter an arrangement whereby it can borrow up to a fixed amount over a period of time. It allows the company to borrow only when it needs the funds. Other