death spiral convert

A convertible bond that gives the holder the ability to convert it into enough shares to protect the bondholder’s principal in the event of a sharp decline in the price of the stock. In other words, if a death spiral convert holder has $1 million of equity in a company, and stock shares decline, the holder can convert the bond into enough new shares to push his or her equity back up to $1 million. This can lead to the original shareholders losing control of a company, if the company’s share price posts a sharp decline.