An Empirical Examination Of Poison Puts In U.S. Corporate Debt

Poison puts were introduced in the mid 1980s as a result of the wave of corporate restructuring. Investors became fully aware of the event risks in bonds and the resulting losses from lack of protection of these risks. The paper provides an overall analysis of poison put bonds based on a large sample of 5,113 bond issues with poison puts. The authors analyze the relation of poison puts with the covenant structure on the issuers' existing debt and find that correlation does exist between poison puts and certain types of covenants. They find that issuers with lower market to book ratio, leverage, free cash flow, and insider holdings are more likely to include poison puts.