The prospectus is a legal document that provides all relevant details pertaining to a bond offering for sale to the public
The bond prospectus, also known as the “offering document”, is a legal document that provides all relevant details pertaining to a bond offering for sale to the public. It is filed to the relevant securities commissions (e.g. SEC in United States, OSC in Ontario) and should contain all facts regarding the issuer and the offering that investors need to make an informed investment decision.
There are generally two types of prospectuses: preliminary and final.
The preliminary prospectus does not state the issue price and size because the bond issuance is not effective (i.e. no bonds can be sold and no offers accepted) until the final prospectus is filed. The preliminary prospectus is used as marketing material to solicit interest from potential investors.
There are three types of corporate bond offerings used by corporations to raise debt:
Issuers filing for a public shelf prospectus undergo a strict filing process with stringent requirements. As a result, successful shelf prospectuses, on average, have a lower level of risk. In contrast, private placements have significantly less regulation, making them much less predictable than public offerings. In general, there is a correlation with prospectus shelves and low risk, while there is more volatile risk with private placements. It is important to note that many private placements are issued by high quality corporations due to unique issuer-specific needs.
When a corporation files a public prospectus, it can either file a short form or a long form prospectus. A short form prospectus for a bond issuance can only be used by issuers with current annual financial statements, current annual business information form, and has equity securities listed on an eligible exchange in the issuance region. A short form prospectus permits issuers to reference the above mentioned information from existing disclosure records, significantly reducing the filing process. If a short for prospectus cannot be filed, a long form prospectus must be filed with all pertinent information regarding the issuer written in full. The review period for these prospectuses also (three days for short form versus ten days for long form in Ontario) differs greatly. A shorter prospectus filing process can reduce the potential for any adverse factors that may affect the issuer’s offering.