medium · Corporate Credit Analysis covenants
A borrower has a 'Change of Control' provision in its bond indenture.
If a Private Equity sponsor sells its 60% stake to a strategic competitor, what mandatory action is triggered for the bondholders?
- The maturity of the bonds is automatically accelerated to the date of the closing of the sale.
- The interest rate on the bonds automatically increases by 500 bps to compensate for the risk.
- The issuer must make an offer to repurchase the bonds at 101% of their par value.
- The bonds are automatically converted into common equity of the acquiring firm.
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