Chastity Bond


DEFINITION of 'Chastity Bond'

A bond that matures immediately upon the completion of a trigger event such as a takeover or a change in control of the issuer. A chastity bond is one of a number of measures - many of which have equally colorful names - that are designed to prevent the hostile takeover of a company. The term is probably derived from the fact that its objective is to prevent unwarranted attention from unwelcome corporate suitors.

BREAKING DOWN 'Chastity Bond'

Chastity bonds are intended to dissuade hostile takeovers, based on the premise that if a large issue of these bonds mature and become payable upon completion of a takeover, the overall purchase price may become prohibitively expensive to the acquirer.

This anti-takeover measure is conceptually similar to another strategy known as the Macaroni Defense, in which a large issue of bonds must be redeemed upon a takeover or change of control, thereby expanding (like macaroni) the purchase price that the acquirer must pay. The only difference is that chastity bonds mature at par, whereas bonds issued in a Macaroni Defense are redeemable at a substantial premium.

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