Finance and Financial Management Commons^™

Death Spiral Convertible Bonds, Austin Dwyer

Senior Honors Theses and Projects

Death spiral convertibles, are a type of loan lenders give to a firm in exchange for a right to convert into equity at below market prices. This differs from traditional convertibles because there is no fixed conversion price. Instead, the price can be reset lower if the firm's stock price falls below the conversion price at the time of issuance. As the process repeats itself the stock's price spirals downwards. This process benefits the bondholders at the cost of the shareholders. Based on a hand collected sample of 23 companies issuing a total of I 97 floating price convertibles, the …