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

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

Investors will probably choose the so-called poison put to avoiddeeper losses given that Burger King is rated five levels lower,according to Noel Hebert, an analyst who follows the restaurantindustry for Bloomberg Intelligence. DBRS Ltd., the only firm thatrates Tim Hortons' C$1.2 billion of bonds, said yesterday it wasreviewing the BBB ratings for downgrade and that its credit riskprofile “will no longer be consistent with an investment-graderating.”

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