The death spiral is a phenomenon that triggers the convertible bondholders to convert the bonds into a higher number of shares as a result of lower prices. The convertible bonds are hybrid debt instruments that bear both debt and equity characteristics. Since each bond is convertible into a fixed number of shares, as a result of the decline in prices of shares, the bondholders receive a higher number of shares as the bond value now converts into more shares.
As a result of this, the book value per share falls because equity is now divided by more shares. This will further induce the bondholders to convert into shares as they will get more shares. Ultimately this process leads to the issuance of the very high number of shares.
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