The Handbook of Financing Growth: Strategies, Capital Structure, and M&A Transactions, Second Edition

In connection with the private placement, the company will covenant to register the common stock, or the common stock into which the preferred stock may be converted. The covenant is typically two-staged. The first stage is an agreement to file for registration of the covered securities with the SEC within 30 to 90 days of the closing of the transaction. The second trigger is a covenant that the registration statement will be declared effective within six months of the closing. In the event that the company does not meet either deadline, a penalty is assessed. The penalty is normally stated as a cash payment due to the investors, and the amount of the penalty varies but is generally in the range of 1 percent of the offering for each month that a deadline is not achieved.

For the company, a PIPE provides access to institutional investors for the most part. As opposed to an initial public offering where 30 to 40 percent of the offering will be sold to individual or retail investors, a PIPE is typically sold exclusively to institutions.

 

High-Yield Offerings Public or private companies may desire to raise capital through the high-yield offering process. If the issuing company is public, the process may be expedited because the materials prepared for prior public offerings may be referred to in the process of generating disclosure documents. Where the company is private, the process may take as long as an initial public offering of equity securities, because the issuance of the high-yield ...