Large bondholders of Ancestry.com Inc.'s first lien and senior notes issued in connection with its leveraged buyout by Blackstone Group will be disenfranchised because of the addition of a voting cap, according to a report from Xtract Research, a firm that analyzes the bond market.
In August, Blackstone announced that it agreed to a $4.7 billion deal to acquire Ancestry.com. The notes associated with the deal — for which the marketing ends Monday — include a provision that applies a 20% voting cap to any holder. Unless the issuer waives the cap, which it has the sole discretion to do, any noteholder's position in excess of 20% of the note balance will be disregarded in any vote, said a report from Xtract published Nov. 20.
"If there's a large holder and it's trying to accelerate or give its consent to a particular action or waive a default, the issuer is essentially in control over how much that holder can vote," said Valerie A. Potenza, head of high yield research at Xtract and author of the report. "Even though the normal convention is 'one note, one vote.'"
Ancestry.com's bonds also include anti-net-short provisions, which have gained traction in recent years and require a bondholder to certify that it is not net short the company if it wants to cast a vote. These provisions are added to curb "activist investors" from calling a default — or refusing to waive one — or accelerating the debt because it would benefit from the default or acceleration, Ms. Potenza explained.
Ms. Potenza said the net-short and voting-cap provisions each disenfranchise voters, but this is the first time an offering has included both. "Usually it's only just a partial disenfranchisement, but this is something we have not seen before in a bond," she said.
A representative from Ancestry.com could not immediately be reached for comment.