Poison put option

A bond poison put option is a provision in a bond agreement that allows bondholders to demand early repayment of the bond at face value if certain predefined events occur. These events, often referred to as "poison puts," can include a change in control of the issuing company, a significant decline in credit rating, or other adverse circumstances specified in the bond agreement. The purpose of a poison put option is to protect bondholders by giving them the right to exit the investment if the issuer's financial health deteriorates or if there is a change in ownership that may negatively impact the bond's value.

By having the ability to demand early repayment under specific conditions, bondholders can mitigate potential losses and preserve capital in uncertain situations. However, the presence of a poison put option may also affect the pricing and liquidity of the bond, as issuers may need to offer higher yields to compensate for the increased risk of early repayment.

Non-putable

In contrast, a poison put option that is non-putable does not grant the bondholder or lender the right to demand early repayment of the principal amount under specified conditions. Non-putable poison put options offer less flexibility for bondholders but may provide issuers with greater certainty regarding repayment obligations.

Putable

There is a provision in the bond or loan agreement that allows the bondholder or lender to require early repayment of principal upon the occurrence of certain events. When the poison put option is exercised, the issuer is required to repay the principal amount to the bondholder or lender, even if the bond has not reached its maturity date.