No. 262 - The market for corporate debt private placements

The paper describes the characteristics of the market for private placements and discusses the necessary conditions for their uptake in Europe. A private placement is a method of financing used mainly by medium-sized companies which, unable to access the public bond market, turn to one or more large institutional investors. Compared to a public offering, a private placement is characterized by: i) lower costs of issue, ii) greater contractual flexibility, iii) lower size and lower secondary market liquidity, iv) lower information asymmetry between investors and issuers. The development of the market for private placements, one of the European Commission’s initiatives for the Capital Markets Union, can help companies to finance long-term investments and contribute to the development of the public bond market. A wider use of private placements in Europe is hindered by the fact that non-bank intermediaries are small in size, there is a lack of financial information about medium-sized companies, and  the regulations and market practices across Europe are not yet sufficiently harmonized.