THE ECONOMICS OF THE PRIVATE MARKET (Manual 166)

1. Overview of the Traditional Private Placement Market

Principal Themes of Part 1 and Key Definitions

Organization of Part 1 and Summary of Findings

2. Terms of Privately Placed Debt Contracts

Issue Size

Maturity and Prepayment Penalties

Types of Payment Stream and Yields

Variety of Securities

Covenants

Covenants and Renegotiation

Collateral

Summary

3. Borrowers in the Private Placement Market

Issuers in the Private Placement Market

Differences among Firms Issuing in the Public, Private, and Bank Loan Markets

Companies Issuing in Both the Public and the Private Markets

Summary

4. Lenders in the Private Placement Market

Life Insurance Companies

Finance Companies

Pension Funds

Banks

Other Investors

Summary

5. Private Placements, the Theory of Financial Intermediation and the Structure of Capital Markets

Asymmetric Information, Contracting, and the Theory of Covenants

Information-based Theories of Financial Intermediation

The Covenant-Monitoring-Renegotiation Paradigm

Private Placements in a Theory of Credit Market Specialization

Other Empirical Evidence Revelant to the Theory of Credit Market Specialization

Summary of Part 1

Part 2:  Secondary Trading, the New Market for Rule 144A Private Placement and the Role of Agents

1. The Rule 144A Market

Features of the Market

Prospects for Development

2. The Role of Agents

Who Are the Agents?

The Stages of a Private Placement Transaction

Information Flows

Price Determination

Agents' Fees and Other Costs of Issuance

Private Market Efficiency

Private Placements without an Agent

Agent Operations under Rule 144A

Summary

Part 3:  Special Topics

1. The Recent Credit Crunch in the Private Placement Market

Definition of Credit Crunch

Evidence That a Credit Crunch Occurred

Sources of the Credit Crunch

Prospects for an Easing of the Crunch

Effects on and Alternatives of Borrowers

Conclusion

2. The Current and Prospective Roles of Commercial Banks

Banks as Agents and Brokers

Why Do Banks Act as Agents, or Why Is the List of Bank Agents So Short?

Prospective Changes in Market Share of U.S. and Foreign Banks

The Role of Regulation

Banks as Issuers of Equity

Banks as Issuers of Debt

Banks as Buyers of Private Placements

Banks as Competitors of Private Placement Lenders

Appendixes

1. Definition of Private Placement, Resales of Private Placements, and Additional Information about Rule 144A

2. The Market for Privately Placed Equity Securities

3. Legal and Regulatory Restrictions on Bank Participation in the Private Placement Market

4. Historical Data on Issuance of Private Debt

5. A Review of the Empirical Evidence on Covenants and Renegotiation

6. An Example of a Private Placement Assisted by an Agent

7. Estimates of Issue-Size and Maturity Distributions

8. Borrower Substitution between the Public and Private Markets

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