Stocks with Toxic Convertible Debt

Toxic debt refers to borrowing structures whose conversion or repayment terms mechanically transfer value away from common stock on each triggering event. The textbook example is the death-spiral convertible: a debt instrument that converts into common stock at a discount to the lowest recent closing price, often with no floor on the conversion price. As the stock price declines, the number of shares issuable on conversion grows, which itself increases selling pressure. The feedback loop drives the stock toward zero.

Variable-rate convertibles, floorless conversion instruments, reset provisions tied to stock-price thresholds, and short maturities on distressed issuers who lack the cash to repay are the structures most commonly flagged. Conventional fixed-rate bonds and bank term loans from established lenders are not toxic.

Toxicity is disclosed in the Notes to Financial Statements section of each 10-K and 10-Q. A high debt-toxicity score means the disclosed terms are shareholder-adverse on conversion. See the methodology for the full scoring rubric.