Canada: To Buy Or Not To Buy: Dealing With A Target’s Bonds

When acquiring a Canadian public company, there is no one-size-fits-all approach to dealing with its outstanding bonds. Generally speaking, the decision whether to repurchase the target's bonds is not entirely within an acquirer's control. Corporate bonds – whether Canadian or U.S. – typically carry a change of control put. When triggered, this put obligates the issuer to offer to repurchase its bonds at a premium of 101% of their principal amount. However, this change of control premium may pale in comparison to the premium necessary to redeem or repurchase the bonds in their entirety. An acquirer may conclude that it is not economical to pay this additional premium to pre-emptively call in all of the target's bonds.

An acquirer has many factors to consider before making a call on how to deal with a target's bonds. Beyond the obvious economic considerations, an acquirer must assess whether viable means are available to call in all of the target's bonds, whether it could live with the bonds if such means are not available and what other costs are associated with leaving the bonds outstanding.

Assessing the Purchase Alternatives

An acquirer must consider the bond indenture, the nature and number of bondholders and applicable law to assess the ways in which it might repurchase all of a target's bonds.

Bonds invariably have optional redemption features allowing an issuer to call in all of its outstanding bonds. For investment-grade bonds, this option is typically limited to a make-whole. High-yield bonds may also provide for a fixed call schedule. While optional redemption ensures all the bonds are called in, the redemption premium can be expensive. An alternative is to offer to purchase the bonds at a price that, while below the redemption premium, is sufficiently attractive to cause holders to tender. Key to this is picking the right price because, unlike a redemption, it is up to the bondholder to decide whether to participate in a tender offer. Typically, these tender offers are coupled with an "exit" consent and provide for an early tender premium to induce participation. Still, 100% participation can be an impractical target. When more than 90% participation is achieved, some bonds afford their issuer a right to redeem the outstanding balance at the tender price. Nevertheless, even 90% participation is a high target and may be challenging if the bonds are widely held, particularly if there are a significant number of retail holders.

While bond tenders are typically subject to few restrictions under the governing indenture, they can be subject to securities regulation. There are no Canadian regulations that specifically govern tenders for debt securities that are not convertible. However, U.S. tender regulations can apply to a tender for debt securities of a Canadian issuer.

Identifying Potential Issues

Aside from economic factors, restrictive covenants or other terms of the outstanding target bonds may compel an acquirer to redeem or repurchase the bonds in their entirety. Restrictive covenants in the target bonds can conflict with the acquirer's plans. Target bonds may also conflict with an acquirer's existing or future financing arrangements. These financing arrangements may not allow for the target bonds or, where applicable, any liens securing them. Conversely, target bonds may not accommodate an acquirer's financing arrangements.

Liens are one potential source of conflict. Although a target's bonds may be unsecured, the negative pledge covenant typically included in unsecured bonds may require that they be secured upon effecting the acquisition if the acquirer has secured debt. A negative pledge will also require intercreditor arrangements to ensure that the target bonds rank equally with the acquirer's most senior debt with respect to any common collateral. Typically, this will not allow for a standstill in favour of the acquirer's senior lenders or any other restrictions on the target bondholder's ability to enforce independent remedies against the common collateral. Extracting these arrangements out of the acquirer's financing sources may be challenging because senior lenders are generally reluctant to share collateral on an equal basis and, where they do, they usually demand the right to call the shots in respect of that common collateral. For existing financing arrangements, these types of accommodations may not be authorized absent lender or bondholder consent.

Assessing Other Costs

Beyond scheduled payments of principal and interest, there can be other significant ongoing costs when a target's bonds are left outstanding. The most significant is the continued cost of public reporting. Canadian securities laws provide that a Canadian reporting issuer must continue to report as a public company as long as there are more than 50 beneficial owners of its securities (including debt securities) worldwide or 15 or more beneficial owners in any province or territory of Canada. It is impractical for most issuers to get under these thresholds by way of a tender offer for its bonds. Redeeming the bonds is often the only option for a debt issuer to cease reporting. Acquirers must also be mindful of whether the bond indenture's reporting covenant requires the issuer to provide financial or other reporting without regard to securities law obligations. However, if problematic, this reporting covenant can typically be removed through exit consents obtained in connection with a pre-emptive tender.

Following delisting of its shares, an acquired Canadian reporting issuer with outstanding debt securities becomes a "venture issuer" under Canadian continuous disclosure requirements. Despite this venture status, the issuer remains subject to most of the same disclosure obligations to which a listed issuer is subject. However, it is permitted more time to file its annual and interim financial statements and associated MD&A. Canadian securities regulators are unwilling to give further relief for these so-called debt-only issuers. A debt-only issuer may, however, satisfy substantially all of its Canadian continuous disclosure obligations through the continuous disclosure documents filed by its parent if that parent is reporting in either Canada or the United States and fully and unconditionally guarantees the issuer's debt securities. The debt issuer need only file certain summary financial information (that deconsolidates its parent's consolidated financial information) and separately report all material changes that are not also material changes in respect of its parent.

Another potentially significant cost is the negative carry associated with any pre-financing of the required change of control offer for the bonds. Some bonds may permit a change of control offer to be made in advance of the acquisition; however, this is not always the case. There may also be expensive ongoing indenture obligations. Some of these may be managed through preemptive exit consents – for example, a covenant that the issuer maintain (and pay for) a rating on the bonds. However, certain fundamental obligations may not be so managed, such as the requirement to maintain and pay a trustee and paying agent for the bonds.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions