Note Purchase Agreements and Private Placement Debt: Key Terms and Structuring Issues

Private placement transactions provide companies with an alternative source of financing to traditional bank lending without the need for formal credit rating and reporting requirements. But, counsel must thoroughly understand the private placement process and the parties involved.

The company will appoint a placement agent (usually a relationship bank). The agent and the company must then prepare a roadshow presentation (if applicable), serving as the primary marketing documents to sell the debt instruments.

The note purchase agreement governs the transaction and usually comes with covenants similar to those required in bank credit facilities, but although there are standard clauses, many are specific to each transaction. Financial and other covenants must be drafted with care as they can significantly impact pricing and the long-term success of the deal.

The American College of Investment Counsel has created Model Form Note Purchase Agreements to address different financing scenarios. They have also produced model documentation for debt rating, swap indemnity, financial covenants, and guaranty, among others, which can be a helpful reference in structuring private placement debt.

Listen as our authoritative panel discusses drafting and negotiating note purchase agreements and other structuring aspects of private placement transactions.