A convertible bond (CB) whose value is pulled down by a declining stock (its potential equity participation). In other words, the upside return potential (equity conversion option) of the bond loses value and becomes more out-of-the-money. Busted convertible bonds usually sell as straight bonds (since they provide the holder with very little equity participation). The bond equity component drops substantially below conversion price and it trades on or near bond value, usually with a high conversion premium (at a premium of 100% over its conversion value).
March 17, 2025
