California Industrial Development Financing Advisory Commission

Private Placement Policy

Private placement issues are defined as the placement of bonds directly with one or a very limited number of investors, rather than through an underwriter to the broader market. If your company proposes a private placement bond issue, CIDFAC policy requires the following:

  • The purchaser must be a sophisticated investor (an investor with the knowledge or expertise to evaluate the risk associated with the purchase). SEC guidelines, specifically Rule 144A under the Securities Act of 1933, define a sophisticated investor as a qualified institutional buyer (QIB) or an accredited investor.
  • The sophisticated investor (if not a QIB) must sign a "traveling" sophisticated investor letter, outlining the requirements and restrictions of the sophisticated investor. The letter will follow the deal if the bonds are sold or traded at a later date.
  • The borrower must provide its financial statements for the last three years. The Commission staff reviews the statements as part of its due diligence to ensure the company is a viable entity. CIDFAC, however, makes no determination as to the borrower's ability to repay the debt.
  • The security for private placement debt is the collateral provided by the borrower (real property or other assets). Because these bonds will be sold only to sophisticated investors, the investors will determine the collateral's adequacy. If investors are concerned about the security for the debt, financial covenants may be required, such as restrictions on the pledging of assets and the assumption of additional debt.
  • Bonds will be issued in minimum denominations of $250,000.
  • The enforceable language for the preceding requirements will be found in the loan agreement and/or bond purchase agreement for each private placement financing. Variations to this policy must be approved by the Commission. Requests for variation must be submitted in writing to CIDFAC at least two weeks prior to the Commission meeting at which the private placement will be considered.