Hi,
Someone know something about the wealth transfer from bondholders to stockholders after a merger ?
thanks in advance for your answare

downside risk has increased for bondholders as it has for stockholders..... but stockholders have much more upside risk which bondholders do not enjoy

as bondholder it doesn't benefit me that much XXX retailer is going to be able to open many more stores that are profitable.... but it really helps equity holder.

the less pristine the credit the more bondholder and shareholder risk come together.. but for high rated debt the holders just expect to get paid easily from existing operations.

ok it is more clear thanks

gravity, i should add my explanation was not that applicable in practice. usually those aren't the type of risks that matter that much or are affected by mergers.

but the idea is the same. higher risk properly executed benefits stock holder, but badly executed kills both bondholder and stock holder. stockholder has other stocks to make up the loss. the investment grade bondholder will never make up that loss on anything.



usually it's that the company is much more indebted after an acquisition... say you own debt of a medium sized company with a debt equity ratio of 30%... then it get bought in an LBO and has 200% debt to equity.

in this case, the bonds got more risky as did the equity.. but the equity holder gets the upside risk whereas the bondholder doesn't.

google some combo of bonds, LBO risk.. that's the really big risk for investment grade bondholders........ combinations between two legit operating companies usually don't cause huge problems but LBO firm buying a company is huge issue.

as i said if you buy a bond with a 12% yield then bondholder interest is more alligned with stockholders. good things have to happen for you to get paid fully on that bond.