Change of control affect debt
Say there's a holdco X and they spin off certain assets into a business Y. As bond holders, I understand that in certain change of control events, holders are given an option to redeem their bonds at some x% of face value. However, if they reject the offer, do they still have claims to the assets of Y? Or are their claims stripped off of Y and limited only to X? I'm having some difficulty understanding this and the change of control section in the indenture isn't helping
a Spin off has a very clear transactional context (as opposed to carve out, etc.) if the spin would clearly trigger the CoC, then you would expect 100% of bondholders to exercise that right because this would be a credit negative event whereby the spun out assets are placed in a likely new box with new shares of NewCo given to the holders of the current legacy shares. the question sort of becomes moot.
I don’t know if you’re reading HY or IG indentures but the granular specifics vary in each case. the end result though is that no one will choose not to exercise the CoC at 101% or whatever it is
Thanks, I'm reading IG indentures. The NewCo in question would be a formed because of a spin off instead of a carve out. If I understand this correctly, if the spin off triggers the CoC, then holders are likely to exercise the right to redeem at 101% because this would be a credit negative event with spun out assets placed in a new box. This makes sense to me. What I'm sort of still having trouble understanding is that if a holder chooses not to exercise the CoC, he would still have a claim on NewCo? Or does triggering the CoC and placing NewCo in a separate box effectively ends claim on those assets? The former answer makes me think that there would be no claim on NewCo whatsoever?
As long as we agree this is moot and just for the hypothetical, if we’re looking at IG docs (Cov-lite) then there really is no credit box with restricted and unrestricted subs and limits on RP, investments and all that Jazz, the IG bonds issued by the holdco would only have a claim if the NewCo somehow guaranteed these bonds. Given that the NewCo did not exist at the time the docs were written, and no covenant would be in IG docs that signified a creation of a NewCo would have to guarantee the bonds, then the bonds would not have any recourse to the assets in NewCo. given that it’s a Spin, the boxes and arrows corporate structure of NewCo is such that there is no more link to the holdco, so no structurally subordinated claims either. Hence why no bond holder in their right mind would choose not to CoC, even if the bond was trading at like 110
One must IG indentures do not contain CoC provisions. Two, a spin-off or a carveout would mostly like fall under an asset sale limitation provision that limits the sale or distribution of all or substantially all of the assets. It is not a change of control because control of the RemainCo had not changed.
In terms of having a claim against spinco assets (apart from the fact that the original premise of question is flawed) that would only arise out of fraudulent transfer litigation. See Tronox case against Kerr McGee, or Paragon Offshore vs Noble Energy
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