A type of convertible bond that can result in the creation of ever-increasing amounts of stock shares, driving the respective stock price down in a dramatic fashion (which at times can lead to an entity’s ultimate downfall). A convertible bond can be converted to a certain number of shares. However, conversion results in a fixed value paid in shares, and the bondholder seems to be in a position of shorting the stock (short selling the stock). This creates more downward pressure on the entity’s stock, and the price goes down and down, while conversion takes place at the pre-defined price. The situation ends up with even more shares (spiraling number of shares).
Comments