Poison Put Debt Acceleration Covenant
The Formal Definition
A bond indenture covenant that grants bondholders the contractual right to demand immediate, mandatory repayment of their debt at a premium (typically 101% of par value plus accrued interest) if an unapproved hostile change-of-control event or leveraged buyout occurs.
$$\text{Mandatory Put Repayment} = 101\% \times \text{Par Value} + \text{Accrued Unpaid Interest upon Change of Control}$$
Cole Barrett's Reality Check
The Unvarnished Bottom Line"A poison put is bondholders' revenge against hostile takeovers. When a corporate raider buys a company with debt, they usually plan to load the balance sheet with even more debt to pay themselves a dividend. The poison put covenant stops that: it says if someone buys the company without the board's blessing, bondholders can immediately put the bonds back to the company at 101% of par. The raider has to find billions in cash overnight or watch the debt accelerate into default."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: An institution holding $20,000,000 par value of corporate bonds in an acquisition target facing a hostile leveraged buyout
| Execution Metric | Covenant-Protected Senior Debt Holder | Covenant-Lite Bondholder |
|---|---|---|
| Fee / Rate | $1/bond institutional ticket | $1/bond ticket |
| Spread / Buffer | Audited indenture: verified the bond carried an explicit 'Change of Control Repurchase Event' (Poison Put) at 101% | Held bonds in the same company that lacked a change-of-control put covenant to capture a slightly higher coupon |
| Execution / Status | Hostile private equity buyout completed; credit rating was downgraded from BBB to B- | LBO closed; company loaded $500M in new senior debt onto the balance sheet; bond rating dropped to junk |
| Total Cost / Result | Preserved capital and locked in premium exit via poison put enforcement | Suffered catastrophic downgrade losses due to lack of poison put protection |
How Brokers Weaponize This Term
When analyzing high-yield or investment-grade corporate bonds, check the indenture on FINRA TRACE or EMMA for a 'Change of Control Put'. Bonds with verified 101% poison put covenants trade with a structural floor during acquisition rumors, insulating lenders from debt-funded LBO downgrades.
Broker Evaluation Matrix
Cole Approves
Interactive Brokers: Provides institutional fixed-income screening that displays all embedded bond covenants, change-of-control put terms, and Yield-to-Worst metrics.
Read Audit →Cole Flags / Avoids
Legacy Retail Brokerages: Quotes corporate bonds without displaying embedded change-of-control covenants or LBO vulnerability ratings.
View Trap Details →Frequently Asked Questions
What is a 'Double Trigger' poison put?
A double trigger requires two events before the bond can be put back to the company: first, a change of control must occur; second, the company's credit rating must be downgraded to junk within a specified window.
Why do corporate boards include poison puts in bond indentures?
To lower the company's borrowing costs (lenders accept lower coupons when protected against LBOs) and to create a structural deterrent against hostile takeovers.