Death Spiral

Usually refers to convertible preferred stock or convertible debt securities where the conversion price is not fixed and adjusts so that it is less than the market price at conversion, and the lower the stock price, the greater the number of conversion shares to be issued. This creates an incentive to manipulate the issuer’s stock price and drive it down, which causes dilution and a further downward spiral. The securities exchange rules may prevent future-priced securities, which may include death spirals.