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.
Related or Semi-related Video
Finance: What is a Dual Currency Bond?33 Views
Finance allah shmoop what is a dual currency bond Well
a currency duel would be way cooler to bonds One
dusty road in the wild west a saloon a gal
and a gun plan retired or called are paid whatever
they call bonds when they're dead Anyway a duel currency
bond is a bond where the principal and the interest
payments are made in different currencies like here's a bond
whose principal is paid off in u s dollars But
its interest is paid in euros and yeah whatever currency
being used for interest payments is called the base currency
Well why would you the investor of want one of
these things Well dual currency bonds or subject to exchange
rate risk In other words you're making a gamble not
just on an investment but on which way the exchange
rate will bounce That is if you own something it's
highly exposed two euros while then you're kind of making
a bet that the relative to the dollar the euro
zehr gonna appreciate mohr like the government's printing less of
them You have less inflation whatever because then if that
repayment currency appreciates well boom you're more in the money
Than just the interest you collected And if that currency
doesn't appreciate well there's always bank robbery is a last 00:01:21.189 --> [endTime] resort dual currency dueling currencies No
Up Next
What are Convertible Bonds? Convertible bonds are bonds that have a provision to be converted into equity common shares at a predetermined strike p...
A moral obligation bond is a bond that is paid or backed by a well-heeled, better funded entity should the bond default.
A surety bond is an agreement between three parties in which one party guarantees that a second party will fulfill a promise to the third party.
What is a savings bond? And does it also take its drinks shaken, not stirred?