What affects bond value after an acquisition?
I have an academic question.
If you are a bondholder and the company that issued the bond gets acquired what happens?
I know that there are 2 possible paths: if there is a protection clause and if there isn't. However, generally what forces affect the price of the bond after the acquisition? Will I generally see that the price falls?
As a bonus: if the firm that issued the bond goes private after the acquisition is there any difference regarding the above?
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what forces affect the price of the bond
After the coupon rate and market interest rates (which aren't impacted by an acquisition), the possibility of default by the issuing company is the biggest factor determining the value of the bond.
There are many clauses in individual bonds that can alleviate this risk (financial covenants, change-of-control covenants, etc.) but in an aquisition, the original company remains as an entity and continues to assume responsibility for paying the debt. Whether the market thinks this entity is more or less likely to default based on the acquisition will determine if the bonds change in value.
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