Toxic Convertible


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Toxic 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 death spiral convertibles or floorless convertibles.

Death Spiral

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 bonds creates more shares outstanding when they are converted, 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 engage in death spirals if they badly need cash.
References in periodicals archive ?
The company has announced a reduction to its toxic convertible note as well as a signed agreement with Primesite Developments Limited, a real estate development from England to help them list their shares on a US exchange.
Section VI reports on the current state of the toxic convertible and concludes.
As a conjecture, management may truly believe that the capital raised through a toxic convertible will be enough to save the company ("prettiest baby syndrome").
However, there seems to be no real call by shareholder groups to eliminate toxic convertible sales.
As a fixed debt, this payable no longer represents the limitless dilution and uncertain risk of a toxic convertible debt, and the settlement gives the Company the option of satisfying the debt by either issuing stock or making cash payments.
As a result, portions of the toxic convertible debt and more than 100 million warrants have been cancelled.
Many small companies are straddled with toxic convertible debt, which is usually very beneficial for the debt holders, but typically works as a detriment to the common shareholder.
Goodlander, who personally holds all of the remaining outstanding shares the Company's Series A Convertible Preferred Stock, is negotiating with a Committee of outside Directors of the Company the terms under which the toxic convertible provisions of both the Series A and Series C Convertible securities would be removed or, in the alternative, the terms on which he would agree to convert the securities at their current contract rate into common stock, subject in either instance to required regulatory and shareholder approvals, if any.
Toxic Convertible Debentures Paid Off in Full; Company is Now Positioned for Dramatic Growth
Pink Sheets: LNGT) announced today that the toxic convertible debentures that the Company previously issued to Cornell Capital Partners LP (now known as YA Global Investments) have been paid in full.
None of the securities to be issued in the private placement will have toxic convertible features.
3 million of toxic convertibles from our balance sheet and puts the company in a stronger financial position.