If you have Corporate Bonds in a company and that company is bought out, by a Private Equity Firm. What happens to the bonds that were issued? Is the new Private Equity Firm responsible for that debt?
Dheer is correct in the general case (and probably all Private Equity cases), however, there are a few exceptions:
- Buyers can offer to "assume" the liabilities of the acquired company in exchange for a lower purchase price. In that case, the debt is transferred to the acquiring company
- Individual bonds may have "change of control" clauses that allow bondholders to redeem their bonds at a specified value if there is a corporate takeover, acquisition, or merger. These are known as "poison puts" since it can make the company mush less attractive for a takeover if their debt has to be redeemed at rates much higher than market.
Is the new Private Equity Firm responsible for that debt?
Say Company A has issued Corporate Bonds, even if the ownership changes to Private Equity firm; the entity Company A remains the same and is still responsible for the debt.
If Company A merges with another company [a Private Equity Firm], then the new entity is responsible for all the debts.
Just to point out the obvious - the bonds you purchased from some company is debt to them - just like if they have a bank loan or a mortgage (obviously placed differently in the hierarchy, but still debt none the less). This relates to regular bonds - not special circumstances with e.g. Hybrids or other term that may have been written.
Debt doesn't go away by change in ownership - remember ownership only relates to the value of the companys equity - not its debt.