Companies can borrow money either through the public debt market or through private placements.
A “public” bond issue is approved by a securities agency that ensures disclosure of information through a legal document called a “prospectus” or “information circular”.
It’s important to note that disclosure does not mean investment suitability. A highly-speculative bond issue is allowed, as long as the speculative nature is adequately disclosed. Investors looking at such an issue should make sure to read every detail, and consider, “can I afford to hold onto this investment even in a worst case scenario?”
A “private placement” is something directly negotiated between the issuer and a lender or group of lenders and is restricted in trading under securities law. This means that only “sophisticated investors” may purchase or trade in these securities.
This usually means there is some minimum investment restriction. In Ontario, for example, a minimum purchase amount of $150,000 is required.
