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FEW British companies look less vulnerable to takeover than Tesco, a supermarket chain that is no one's idea of a shrinking violet. Yet this week Tesco approached the bond markets with an unusual lure to creditors. Its long-term bonds included a covenant that would protect bondholders' interests in the unlikely event that Tesco is gobbled up.

Bankers say it is not the first time that Tesco's bonds have included such a “change of control” clause. Other big companies, even if they seem just as safe as Tesco, are being pressed by creditors to follow its lead.

There are two reasons why. First is the pace and scale of takeover activity around the world, with bidders employing cheap debt in colossal volumes. Second, creditors that have lent with few strings attached in recent, easy-money years are learning to be a bit more demanding.

Change-of-control protection offers them valuable peace of mind. Whereas shareholders mostly relish the thought that a company they own might be on the receiving end of a bid, bondholders are terrified by it. Usually, it means a load of new debt, relegating their claims and cutting the price of their bonds. The very attributes that attract bondholders to a borrower, such as large, stable cashflow to service debt, are the same that entice a leveraged buy-out (LBO) fund. So without change-of-control safeguards, the danger of being blindsided is growing.

According to Louise Purtle, a strategist at CreditSights, a research boutique, two of the biggest recent deals in America, last year's $11.4 billion LBO of SunGard Data Systems, and Koch Industries' takeover of Georgia-Pacific, both gave bondholders an unwelcome surprise. They had assumed the target companies' size made them impregnable. In Europe KPN, a Dutch telecommunications group, sold bonds last week which included a change-of-control clause—a “ sine qua non ”, says one Latin-speaking banker, because of the risk of a buy-out.

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