Many debt contracts contain so called performance-pricing provisions, which specify an automatic coupon increase should some performance measure of the issuer deteriorate. One motivation for using such provision is as a signal about the issuer’s future performance. We test this hypothesis at the exam- ple of rating-sensitive bonds (RSB). We find that upon announcement the issuer’s stock and bond prices increase significantly, while the issuer’s CDS spread declines. Firms subject to higher information asymmetries and firms just above the IG/non-IG threshold are more likely to issue RSB, especially during periods of market distress. RSB issuers are ex-post more likely to experience a credit rating improvement relative to regular bond issuers. These results are consistent with RSBs being a credible signaling device. ​