Debt buyers are increasingly requiring event protection

• Requiring change of control and ratings downgrade covenants
• Even from investment grade issuers

To address risk of current market developments

• Increased risk that an issuer will become more highly leveraged after a private equity sponsored buyout or activist shareholder inspired recapitalization
• Increased leverage from a buyout or recapitalization
  would otherwise lower value of outstanding debt issues

Typically give holder right to require issuer repurchase

• In event of a change of control
• Usually with a slight premium

Precedent covenants

Precedent Invocations

SEC_CODE_REF_0090001192884

Mohawk Industries - Senior Notes

• Issuer adds interest rate step-up
• Tied to downgrades by Moody's or S&P
• Preliminary prospectus supplement (1.11.06)

• Final term sheet (1.09.06)
• Final prospectus supplement (1.13.06)

Temple-Inland - Senior Notes

• Issuer adds interest rate step-up
• Tied to downgrades by Moody's or S&P
• Final term sheet (12.05.05)

• Prospectus supplement (12.05.05)

Covenants