Poison put provisions, which are commonly found in loan agreements and bond indentures, trigger full payment of the debt at face value upon certain events such as a change in a majority of the board of directors unless a majority of the new board consists of incumbent directors or directors approved by the incumbent directors. These provisions are termed “poison puts” or “poison proxy puts” because they can have the same effect as a “poison pill” by discouraging hostile takeovers or acquisitions and entrenching directors, while also having the same effect as a put by requiring a party to pay higher than market value for the bonds.
These provisions are usually intended to protect lenders by providing the lenders with input on hostile takeovers that could significantly alter the financial condition of the target, helping to ensure the lenders continue to get the type of credit risk they originally bargained for.1 However, poison put provisions also have the potential effect of making the target less attractive to a corporate raider or a white knight by imposing costs on a change in control.2
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.
For questions call 1-877-256-2472 or contact us at [email protected]
