Free course · Lesson 14 · 4 min
Variable-price convertibles: the spiral
In 4 minutes: the variable-price note, why a falling price feeds it, and how to tell it apart.
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01Same debt, more shares
A variable note converts at a discount to the recent market price. The debt stays the same, so a lower price means more new shares.
new shares = $1.0M ÷ conversion price
Half the price, twice the shares. The debt never changed.
02The spiral
More shares means more selling, and more selling pushes the price down. Then the next conversion prints even more shares.
03The only brake: a floor
Some notes set a floor, the lowest price they can convert at. Without one, the share count has no bottom.
04Where it tends to end
A long spiral can push the price under $1. That is when a reverse split tends to follow.
- The noteconverts at a discount to the market
- Conversionsthe price falls, the share count climbs
- Under $1Nasdaq’s $1 minimum bid is at risk
- Reverse splitfewer shares, a higher price: lesson 17
05PNDA’s note is fixed
PNDA’s note converts at $2.80, whatever the market does. This is the good kind to read.
063 checks for any convertible note
Sources
- SEC, Investor.gov: Convertible Securities: conversion at a discount to the market, why a lower price means more shares, and the “death spiral” and “floorless” nicknames.
- Nasdaq Continued Listing Guide: the $1 minimum bid price.
Panda Desk shows these rows for any small cap, next to your montage. tspanda.com
Not financial advice. PNDA is fictional, and nothing here is a recommendation to buy or sell.