The Offering Memorandum: What to Expect When You Read It

An offering memorandum is sometimes referred to as a private placement memorandum or offering circular. It is the governing legal document for a private offering of securities. It provides essential information to prospective investors. That information includes background about the newly issued securities, financial data on the company, risk factors, how the proceeds from the issue will be used, and a host of other pertinent information. The offering memorandum contains similar information to a prospectus, which is for public-traded offerings and is required to be registered with the U.S. Securities and Exchange Commission (SEC).

Offering memorandum SEC

Private Placements Under Rule 144A

Private placements of securities are often Rule 144A offerings. Rule 144A is a safe harbor from the registration requirements of the Securities Act of 1933 for certain qualified institutional buyers (QIBs). Under Rule 144A, QIBs may hold privately placed securities for much shorter holding periods. The rationale is that certain sophisticated institutional investors do not require as much SEC protection when purchasing securities. A QIB is a company that manages a minimum of $100 million in securities that are invested on a discretionary basis. However, QIBs also include accredited investors, banks, trust funds, pension plans or other sophisticated entities that meet certain specified criteria.

Contents of the Offering Memorandum

This overview will highlight the core elements and sections commonly seen in an offering memorandum. The offering memorandum begins with a cover page that is followed by a table of contents. The table of contents varies depending on specific company factors. But it typically includes some or all of the below sections. We’ll focus on the more important ones.

Example Table of Contents

  1. Summary
  2. Risk Factors
  3. The Transactions
  4. Use of Proceeds
  5. Capitalization
  6. Historical Consolidated Financial Data
  7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
  8. Business
  9. Management
  10. Principal Stockholders
  11. Description of Other Indebtedness
  12. Description of Notes
  13. Independent Auditors
  14. Exhibits

Box Summary of the Offering Memorandum

The beginning summary section contains information marked with a box border.This section covers basic information about the securities offering and its value proposition. The summary section typically only spans 6-8 pages. Nevertheless, it attracts significantly more investor attention than the remaining 90 or more pages of the offering memorandum.

Risk Factors

The beginning of the Risk Factors section of the offering memorandum typically includes a disclaimer with language similar to the following:

“Investing in the Notes involves a high degree of risk. You should carefully consider the risks described below, and the other information contained in this offering memorandum, when evaluating us and our business and before you purchase any Notes. Any of the following risks could materially adversely affect our business, financial condition, results of operations and cash flows.”

Offering Memorandum Due Diligence

The Risk Factors section varies in length, but typically ranges anywhere from 6-37 pages, with the average length being approximately 21 pages. The factors influencing the length of the Risk Factors section includes variations in industry trends, revenues, and competitive pressures. A substantial majority of companies list risk factors relating to the business performance and to stock ownership. According to research studies, companies in the technology industry list the highest number of risk factors while manufacturing companies have the lowest average number of risk factors listed.

Some common subheading descriptions in the offering memorandum risk factors section may include:

  • “Changes in estimates related to revenues and costs associated with or contracts with customers could result in a reduction or an elimination of previously reported revenues and reduction of profits or the recognition of losses.”
  • “Our industry is highly competitive, and competitive pressures could affect our business, financial condition, results of operations and cash flows.”
  • “Difficult market conditions may adversely affect our businesses in many ways, which could materially reduce our revenue, net income and cash flow and adversely affect our financial prospects and condition.”
  • “Our dependence on suppliers, subcontractors, equipment manufacturers and other third parties could expose us to risk of loss in our operations, which could negatively affect our business, financial condition, results of operations and cash flows.”

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Management’s Discussion and Analysis of Financial Condition and Results of Operations, or “MD&A,” is intended to provide insight on the company’s financial performance from the perspective of the management team. After the box summary, this is the second most highly focused on section of the offering memorandum. The MD&A provides investors with insights into a company’s existing and future financial performance.


The Business section contains a detailed description of the issuer’s business, including its products, number of employees, competitive advantages and disadvantages, material litigation and liabilities, and regulations that affect the business.


The Management section contains biographies of the company’s directors and officers, compensation arrangements, and other relationships they may have with the company or principal stockholders.

Description of Other Indebtedness

This section is usually 1-3 pages long and summarizes the company’s senior credit facilities, any preferred stock, and any other indebtedness of the company. Typical subsections include:

  • General
  • Interest Rates and Fees
  • Prepayments
  • Guarantee; Security
  • Covenants
  • Representations and Warranties
  • Events of Default

Description of Notes in the Offering Memorandum

The Description of Notes is typically at least 40 pages long and includes language that closely parallels the operative language of the indenture. The indenture is the main legal document covering the company’s debt obligations. It contains a number of debt covenants, which lay out conditions that the company must follow in order to receive the loans. The ofering memorandum broadly divides the debt covenants into two categories—maintenance covenants and incurrence covenants. Maintenance covenants require that a certain level of financial performance is maintained in order to prevent default. Incurrence covenants require the corporate borrower to comply with certain financial conditions in the event that the company wants to take a specific course of action such as incurring additional debt or making a restricted payment.