Adjustment Bond

An adjustment bond can choose to pay interest—or not—at will. If the responsible party for the bond punts a payment, they don't go into default—they just keep rollin' over the debt they owe.

Now you might be thinking, “Why would anyone want an adjustment bond when there are bonds that promise to pony up cash faithfully?”

Good question. Adjustment bonds are usually issued when a company is facing bankruptcy or is restructuring. If you’re popping antacids like Tic Tacs because you have bonds that might be useless if a company goes under, you (and other bondholders) might get adjustment bonds if the company is really struggling. It eases some of the pressure on the company by letting them pay off what they owe, and it means you might get at least some of your cash (and some of your expected returns) back. It’s better than nothing, which is what you’d get with a bankruptcy and no adjustment bonds.