Money now, stock later

Ebb & Flow Focus

Convertible note financings seem to be the vehicle du jour for companies that are struggling to raise money. Often, the financings allow the note holders to convert into equity at a steep discounts to the market price, which causes two problems. First, existing shareholders experience extra dilution when the company sells stock below market. Second, cheap stock entices a quick flip. A 15 percent conversion discount means an immediate 15 percent paper gain, which can put selling pressure on common shares...