Issuing Longterm Debt

The general procedures followed in a public issue of bonds are the same as those for stocks. The issue must be registered with the SEC, there must be a prospectus, and so on. The registration statement for a public issue of bonds, however, is different from the one for common stock. For bonds, the registration statement must indicate an indenture.

Another important difference is that more than 50 percent of all debt is issued privately. There are two basic forms of direct private long-term financing: term loans and private placement.

Term loans are direct business loans. These loans have maturities of between one year and five years. Most term loans are repayable during the life of the loan. The lenders include commercial banks, insurance companies, and other lenders that specialize in corporate finance. Private placements are very similar to term loans except that the maturity is longer.

The important differences between direct private long-term financing and public issues of debt are:

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