question about corp bonds

sciencegeek

Hi,

I was wondering what happens to corporate bonds if the company is bought out (not nationalised).
I realise that if a firm goes bust it is likely that bondholders will lose some or all of their investment but i am unclear what happens when the business is viable but bought out.

Key questions are:

are the bonds redeemed at face value?
or... are the dividend payments maintained under the original terms?
or... can the buying company do whatever it wants to?
or.. something else entirely.

many thanks for any info.

SG

Richard_DandR

Rather depends on the terms of the takeover but normally the bonds would be allowed to continue to their maturity date. Interest would be paid as previously (under the terms of the trust deed governing the bond).

You may sometimes find the new company will swap the old bonds in the old company for new bonds in the new company. The terms may be better if they want to encourage holders to swap but the increase in value is unlikely to be substantial.