Final answer:
Private placements of bonds have lower issuance costs because they avoid extensive regulatory requirements, registration, and public disclosure, best suiting large firms or those seeking significant capital for major transactions.
Step-by-step explanation:
Private placements of bonds typically incur lower bond issue costs because they are not subject to the same level of regulatory requirements and the associated costs such as registration and reporting that are required for public offerings.
In a private placement, the bonds are sold directly to a small, qualified group of investors. This process bypasses the public markets, which can be both time-consuming and expensive due to the need for extensive disclosures and legal compliances. Private placements are typically more suited for large and well-known firms or for those seeking to raise new financial capital, pay off old bonds, or acquire other firms. Banks, on the other hand, are more customized in their lending and are often a better fit for relatively small firms that may need to be closely monitored.