Floorless convertible
A floorless convertible is a convertible note or preferred stock whose conversion price can fall with the market price without any minimum, so a lower stock price means more shares on conversion.
Last verifiedHow it works
A standard convertible converts at a fixed price set at issuance. A floorless convertible instead converts at a price tied to recent trading, typically a percentage of a low trading or volume-weighted price over a lookback window (see variable-price conversion). There is no floor price below which the conversion price stops falling.
Because the number of shares issued equals the amount converted divided by the conversion price, a lower stock price produces more shares for the same dollar amount of debt.
Worked example
Hypothetical: Company X issues a $1,000,000 note convertible at 80% of the lowest VWAP in the prior ten trading days.
| Lowest VWAP | Conversion price | Shares for $100,000 converted |
|---|---|---|
| $1.00 | $0.80 | 125,000 |
| $0.50 | $0.40 | 250,000 |
| $0.25 | $0.20 | 500,000 |
All figures are hypothetical.
At the lowest price the same $100,000 converts into four times as many shares. The holder can convert in pieces, sell, and convert again.
Why it matters
Without a floor, the maximum share count is not fixed in advance, which is why this structure is the core of what traders informally call toxic financing and is associated with the death spiral mechanism. Some agreements include a floor price after all, or a cap on total issuance under exchange rules such as Nasdaq Listing Rule 5635(d), and most include an ownership blocker that limits how much the holder can own at once.
How to spot it
Read the conversion price definition in the note or certificate of designation, usually an exhibit to an 8-K. Phrases like "the lower of" a fixed price and a percentage of a market price, or "Variable Conversion Price", signal it. See Toxic convertibles.
See it on DilutionScan
Companies DilutionScan covers, with the instruments read from their SEC filings. Open one to see each instrument and the filing it came from.
- GNSGenius Group Limited8 warrant series, 1 convertible, 1 ATM program, 3 shelf registrations and 2 completed offerings on file
- SMXSMX (Security Matters) Public Limited Company Ordinary Shares10 warrant series, 8 convertibles, 2 equity lines, 4 shelf registrations, 4 S-1 registrations and 2 completed offerings on file
- MLGOMicroAlgo, Inc. Ordinary Shares2 warrant series, 5 convertibles and 2 shelf registrations on file
- HOLOMicroCloud Hologram Inc. Ordinary Shares2 warrant series, 1 convertible, 3 shelf registrations and 2 completed offerings on file
Guides that use this term
- Toxic Convertible Notes: How Variable Pricing WorksToxic convertible notes explained: how variable conversion prices, VWAP discounts and lookback windows work, and what happens to share counts with no floor.
- Beneficial Ownership Blockers: 4.99% and 9.99% CapsHow 4.99% and 9.99% beneficial ownership blockers cap a holder's stake at any moment but not total dilution, explained with a worked convert-and-sell cycle.
- Prepaid Advance Agreements: How They Become SharesHow a prepaid advance agreement works: cash up front repaid in discounted shares, and how the discount, lookback, floor and triggers set the share count.
- Adverse Financing Terms: MFN, Partitions, No MaturityAdverse financing terms that rarely make headlines, from undisclosed balances and partitioned notes to MFN and participation rights, and how each adds dilution.
Related terms
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Definition from the Signal8 Academy glossary. Educational content only. DilutionScan and Signal8 are not broker-dealers or investment advisers, and nothing here is a recommendation to buy or sell any security.