This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Death Spiral Convertible Just Refuses to Die

The "death spiral convertible" might sound like your last car, but it's a bond -- and it's making an unlikely comeback on Wall Street.

These much-maligned securities, whose conversion into common shares can be triggered by precipitous drops in a company's stock, all but disappeared from the market three years ago. The near extinction occurred as investors got wise to the deleterious impact an endless flood of new shares can have on price.

Subsequent allegations of manipulative trading by some of the hedge funds that invested in these deals looked to be the death knell of the death spiral convertible. Those allegations ultimately spawned a regulatory investigation that led to a number of enforcement actions against hedge funds accused of illegally profiting from declines in stock.

Over the past year, however, there's been a surprising revival in the market for death spiral convertibles -- known officially on Wall Street as "floating convertibles.''

In particular, small, cash-strapped companies with market capitalizations often under $100 million are selling these bonds to hedge funds in deals covered by the Wall Street acronym PIPEs, or private investments in public equity. The resurgence in death spiral deals may be an indication that tiny, cash-strapped companies are finding fewer options for raising money.

This year, 10% of the 478 completed PIPE deals brought to market have been death spiral transactions. By comparison, just 1.9% of all PIPE deals in 2003 were categorized as death spirals, according to research firm PlacementTracker. (PlacementTracker officially calls them floating convertibles).

Last year, death spirals accounted for 6.4% of the $20 billion-a-year PIPEs market. Death spiral deals peaked in 1999, when they represented 20% of all PIPE transactions.

Some of the companies that have done death spiral PIPE deals with floating conversion prices this past year include Generex (GNBT) and Vasomedical (VASO), according to PlacementTracker.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,501.65 0.00 0.00%
S&P 500 1,878.61 +3.22 0.17%
NASDAQ 4,148.3380 +21.3710 0.52%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs