THE ECONOMICS OF THE PRIVATE MARKET
Agent Operations under Rule 144A
As noted in part 2, section 1, the market for many new private issues made under Rule 144A operates much more like the market for new public issues than like the traditional private placement market. Some securities involved in transactions exempt from registration under Rule 144A have been distributed by agents in the fashion described above. Others, especially those of well-known U.S. or foreign companies, have been formally underwritten.
Agent prospecting, advice, competition, and due diligence are much the same for both underwritten and traditional privates, but the distribution of underwritten securities is usually similar to that seen in the public market. Underwritten securities are often sold to typical buyers of public issues. For example, many life insurance companies buy such issues through their public bond investment groups, not through their private placement investment groups.
When there is no firm-commitment underwriting, some Rule 144A offerings are made on a take-it-or-leave-it basis by the agent organization's fixed-income sales force. Thus, Rule 144A placement distributions are often at the public-like end of the spectrum of private market distribution styles. Agents that are proficient at this style of distribution have a distinct competitive advantage in assisting Rule 144A placements.