What Is 144A BOND?
Bond issued in the U.S. without the formal approval of the Securities and Exchange Commission (SEC). Because of the absence of stringent disclosure requirements mandated for public issues, the 144A issuance is usually referred to as “private placement.” Sometimes people also call this type of bonds as “Rule 114A Bond.” This “Rule” was introduced in 1990 to help those high-risk companies to borrow money, and it has been available to both the U.S. and foreign companies. Not everyone can subscribe or buy bonds issued under Rule 144A. In fact, there are specific requirements (e.g., a minimum net worth of $25 million) that the bond buyers must satisfy. Collectively, those who meet the requirements are referred to “Qualified Institutional Buyers.” Only these institutions can buy Rule 144A bonds. Because of the fact that issuers of 144A bonds are generally of lower credit quality, 144A bonds usually carry a higher yield than otherwise identical, public bonds.
See “Bond,” “Coupon Payments” and “Face Value” for basic knowledge of bonds. Also see “Yankee Bond” and “SEC.”