medium · Corporate Credit Analysis covenants
An analyst is evaluating a 'Successor Obligor' clause. If Company A acquires Company B and assumes its debt, but the transaction does not trigger a Change of Control, what is the primary protection remaining for Company B's bondholders?
- The acquirer must assume all obligations of the debt AND must not be in default under any indenture covenants immediately after the merger.
- The original bondholders are granted a first-priority lien on the acquirer's existing assets.
- The acquirer must pay a one-time 'assumption fee' of 50 basis points to the bondholders.
- The acquirer is prohibited from issuing any new debt for 12 months following the acquisition.
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