Test of the Poison Put

Tim Hortons becomes test case for the strategy; bondholders have option of holding on through possible downgrade or selling at prices below pre-announcement level.

Tim Hortons Inc. (THI) bondholders will pay a price if they relinquish their debt under threat of a downgrade to junk because of the doughnut chain’s purchase by Burger King Worldwide Inc.

Under what’s known as a change-of-control provision, investors have the option to hand the debt back at a price of 101 percent of face value, or five cents less than what the bonds traded at before the second-largest U.S. burger company agreed this week to acquire Oakville, Ontario-based Tim Hortons for about C$12.5 billion (US$11.4 billion).

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