Question

What are the differences between the following alternatives???

1- Obtain private debt financing

2- Seek out a private investor(s) who would be willing to share ownership

3- Seek out offers for a private buy-out

4- Issue public debt (corporate bonds)

5- Issue public common stock

Answer 1

Solution

1. Private debt financing: Private debt comprises mezzanine and other forms of debt financing and the investors are mainly institutional investors such as funds and insurance companies. These type of debts generally have higher interest rates as compared to banks or corporate debts

2. Seek out a private investor(s) who would be willing to share ownership: In this process what you are doing is selling the shares to private investors and diluting the ownership.

3.Seek out offers for a private buy-out: When the current owner of the firm is selling the ownership to the private investor or private investors are buying out all the shares or ownership of the company

4. Issue public debt (corporate bonds): In this process, the company is issuing corporate bonds that can be purchased by the public. This is relatively cheaper as compared to private debt.

5. Issue public common stock: In this process, the company goes public through IPO. The company is selling shares to the public and raising money from there.