In Japan, it is a convertible bond in which the conversion price is not predetermined but is kept floating (i.e., it has a moving strike). This bond converts into the common shares of an underlying firm at a deep discount to the share price that exists at the time of the issuance and at a fixed dollar amount rather than a fixed number of shares. In the late 1990s, several internet firms issued this type of bond, which implied that if the underlying share price falls, the borrower (issuer) can’t help but convert the bonds into more shares (so that lenders are paid a fixed dollar amount of shares). This process results in dilution to the value of outstanding shares, sparking a self-reinforcing downward “spiral” in the share price (hence, this bond is also known as a death spiral convertible bond).

It is also referred to as a floating rate convertible bond, a toxic convertible bond, a floorless convertible bond, or a ratchet convertible bond.