Adjustment Bond

  

Categories: Bonds, Investing

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.

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Finance: What are Convertible Bonds?9 Views

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Finance a la shmoop what are convertible bonds? okay there's a joke about the

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Inquisition in here somewhere or maybe something about Cossacks and 17th

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century Russia what do you think animated musical or maybe a King Henry [King Henry VIII appears]

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thing but yeah all that's different kind of conversion way more pedantically a

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company might be having a hard time selling or issuing its bonds to Wall [Man with company briefcase for head meets man with Wall Street briefcase for a head]

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shares of our stock that is they would have a single thousand dollar unit of

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that bond and it would convert into 20 shares which would then value the shares

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at 50 bucks either thousand divided by 20 there's 50 it's an advanced calculus

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sorry if you didn't have it which would sort of be you know the over/under price

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safe bonds into those risky pesky equities well why would a company offer

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convertible bonds instead of you know just vanilla bonds well if they were [Man discussing convertible bonds]

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stuck paying 6% interest on just bonds but really could only afford to pay 4%

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well they might get the interest rate discount by throwing in that equity

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kicker in the bonds having that convertibility feature yes they would

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suffer dilution at 50 bucks a share but that price is double and change where

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the stocks out here so the company is probably thinking that it wouldn't mind

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some dilution from these bonds being converted up there in stock price right [Arrow points to stock value mark on graph]

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converted the moment those bonds are converted into equity well then the debt

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on the balance sheet of the company and its obligation to pay that 4% yearly [Company balance sheet and interest highlighted]

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interest goes mercifully away they print 20 more shares for each bond converted

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and yes those shares may pay a dividend but as far as the convertible bonds go

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they are thereafter converted and saved and remember Jesus Saves but Moses

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invests

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