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Floorless Convertible

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Floorless Convertible
Used by companies that are in such bad shape, that there is no other way to get financing. This instrument is similar 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. The further the stock falls, the more shares you get. Popular in the mid to late 1990s. Also known as toxic convertibles or death spiral convertibles.

Floorless Convertible
A loan that investors give to a publicly-traded company in exchange for convertible bonds. The convertible bonds give the investor a right to buy shares in the company at a low, agreed-upon price. However, issuing these shares creates more shares outstanding, which results in a drop in the share price. The low share price encourages more bondholders to convert their bonds to equity, which causes a further drop in price and the process continues. Because of this disadvantage, companies only issue floorless convertibles when they badly need cash. A floorless convertible is more commonly known as a death spiral convertible.


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The complaint, which was filed in the United States District Court, Southern District of New York alleges that CSFB, after being retained by the Company as its exclusive financial advisor, represented that it would raise substantial capital for the Company from "name investors" and when it failed to do so, recommended the Company raise money by issuing floorless Convertible Preferred Stock and promising to support the Company's stock in the market.
 
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