JOBS Act fuelling secretive bond offerings

May 13, 2013

business transactionsTransactional lawyers have witnessed a change in foreign capital raisings recently.  Foreign companies appear to be moving from public to private markets to fund their expansion plans, looking to free themselves from pesky securities laws by taking advantage of softer securities rules introduced by the U.S. JOBS Act.

For instance, Software firm SAP recently completed a $1.4 billion U.S. private placement in a deal with 33 undisclosed institutional investors. SAP avoids public markets – and their disclosure requirements – in favor of a confidential consortium of institutional investors. According to a recent Business Law Currents article, this could be because, “[this type of offering] requires none of the formalities or expenses of a public offer.”

Other companies are even switching their existing bonds from public markets to private. UK-based packaging company Rexam recently issued $750 million in private bonds to pay down its existing public commitments. Less than 18 months ago, Rexam’s private U.S. bond liabilities were less than half of its public bond liabilities. By last December, its private bond liability exceeded its public liability by almost £170 million.

With lower requirements for private bond issuances and a greater ability to advertise them, U.S. private placements have become a powerful tool in a company’s fundraising arsenal.  The number of companies lining up for private placements, and the amount of money they’re looking to raise, are only going to continue to climb.