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Bonds/Death spiral bonds

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Expert: Doug Ingram - 4/13/2005


Question
What are death spiral bonds or death spiral convertible debentures?


Answer
It's a term given to bonds that have a feature where the debt (bonds) can be converted into stock of the company.

However, the stock conversion price (option) can be at levels that are far BELOW market levels.  That keeps the stock price down.

If a company is doing poorly, and has issued such debt, the debt could be converted to stock resulting in the original shareholders losing control of the company.

Of course, that would happen anyway if a company is in real trouble.  Bond holders have somewhat-secured debt.  Stock holders don't!

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Doug Ingram

Expertise

Fixed income portfolio allocation and strategies for institutional investors. Having designed multi-scenario risk quantification and cash flow projection models for nearly 25 years, Strategic Technical Initiatives can answer your regulatory, SFAS 115 allocation, securities selection, and other questions dealing with yield curve placement and portfolio mix strategies. I write the Bond Market Review on behalf of Commerce Street Capital Management.

Experience

Trading and designing portfolio strategies since 1980.

Education/Credentials
Physics and Differential Mathematics

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