Definition
The term adjustment bond refers to a security issued when a corporation is recapitalized during a bankruptcy proceeding. Adjustment bonds are issued in exchange for the outstanding debt of an organization, typically with terms that will help the corporation successfully emerge from bankruptcy.
Explanation
During the recapitalization phase of a Chapter 11 bankruptcy proceeding, a corporation can consolidate their outstanding debt and transfer those obligations to adjustment bonds. These securities provide the issuer with more favorable terms such as the security's rate of interest. Adjustment bonds are issued to increase the likelihood the corporation will be successful in meeting their debt obligations and subsequently emerge from bankruptcy.
Corporations need the cooperation, and approval, of existing bondholders when issuing an adjustment bond. As is the case with income bonds, adjustment bonds only pay interest after payment has been made to all other obligations. Failure to pay the stated rate of interest, if not earned, does not result in default on the bond.
Related Terms
The term commodity-backed bonds refers to debt securities that are linked to the price of a commodity. These securities are typically issued in one of two ways. The rate of interest paid on the bond can change as the price of the commodity fluctuates. Alternatively, the face value of the bond can increase or decrease as the price of the commodity changes.
Moneyzine EditorJanuary 11th, 2024- The financial accounting terms registered and bearer bonds refer to the indication and method of ownership associated with the security. With registered bonds, the owner's name and contact information is kept on file with the issuing company. Bearer bonds do not have registered owners on file with the issuing company, and are considered owned by whoever is in possession of the certificate.Moneyzine EditorSeptember 21st, 2023
The term accrual bond refers to a security that does not make periodic interest payments to the bondholder. As interest accrues, it is added to the principal of the bond and paid to the investor when the security matures.Moneyzine EditorNovember 6th, 2024
