The ABC's of Debt to Equity Conversion

Hello all, I just got back from Florida late last night looking at some deals and while I was gone, I have received hundreds of questions about conversions of debt to equity. I want to help everyone understand but, clearly you should always check a company's filings. However, I might not be able to comment on the particulars in a specific situation...I can tell you how it usually works:

Typically, when a debt is converted it is done at a discount to the lowest price in the past 20 days to protect against risk. Typically it is debt converted into free trading shares which can be sold immediately. SO, every has a job to do in not letting the stock price dip too much. The lower it goes, the better the deal the debtor gets. For example if the stock dips to .0002 then the debtor can get their stock based on that price for the next 20 days even if it climbs to $1. The higher the stock price stays, the less of a discount the debtor gets and the less dilution takes place. So it’s a bit of a catch 22. It can be very positive if shareholders of a company like this buy stock, and tell friends to buy, keeping the stock price up and absorbing the selling. Especially if you know there is a limited amount of debt and that it will stop eventually because at that point the stock price will typically shoot straight up 1000% or more as long as the company has a solid business model.

I hope that helps. Now, at least you have an idea of the basic fundementals.
Have a great weekend!

Thank you,
Raymond Barton