Running head: IPO DEBT AS A STRATEGY
Investment bankers have most of the same characteristics as any other intelligent predator. There is no question that the investment banker would like to see the firm use his firm to raise money for any project that finance it in some other manner. He is clearly interested primarily in fee income generation. That he wants to have the company issue more securities through his firm is a sort of compliment in that he feels that the business is attractive enough to make sale of both debt and equity simultaneously.
The argument that the use of public debt as opposed to leasing or debt generated from some other source, presumably a bank, would make the company look "more aggressive" and hence this would somehow make the firm more attractive is interesting if difficult to justify. Is a conservative firm that is cautious somehow unattractive to investors? As to making an IPO easier and generating millions of dollars in additional net proceeds, the question is additional to what? It is clear that selling both debt and equity, particularly if it produced millions in incremental net proceeds would also produce both million more in gross proceeds and at least tens of thousands more in fees. The key word in the pitch is net and not proceeds to the firm. Net implies after fees and expenses. These are relative to the increased gross proceeds of the financing activity.
In fact, unless the factory is financed entirely from company cash, which was generated through retained earnings, the new plant involves some form of financing. Leasing is simply a concealed form of debt in most instances. Under most contemporary accounting presentations, capitalized debt appears somewhere on the financial statements and it certainly appears in the footnotes. If the company makes a term bank loan as opposed to public bond financing to enrich the investment banker the effect on the f
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