Financial Terms By: d Death Spiral Convertible Used by companies that are in such bad shape, that there is no other way to get financing. This instrument issimilar to a convertible bond, but convertible at a discount to the share price at issuance and for a fixed dollar amount rather than a specific number of shares.
What happens if a company has a death spiral?
Ultimately a death spiral results and the company can be forced into bankruptcy. A conventional convertible bond or preferred stock can be converted to a fixed number of shares. Death spiral debt, however, converts into a fixed value paid in shares.
Can a convertible debt be converted to common stock?
This convertible debt, often convertible preferred stock or convertible debentures, can be converted to the common stock of the issuing company at a discount to the market value of the common stock at the time of each conversion.
Can a convertible bond thwart short sellers?
The only hope for the company to interrupt the death spiral is to improve its operational results. If it can effectively invest the proceeds of the convertible bond issue in its underlying business, it may be able to thwart the short sellers and even stick them with the losses.
