What is a Busted Convertible?
More properly known as a fixed income equivalent, the busted convertible is a security that is now considered to possess a worthless conversion feature. The reason that the busted convertible is considered to have a valueless conversion is that the price of the common stock that would be used in the conversion has fallen drastically, rendering the stock to be of little or no value. Essentially, this set of circumstances creates a situation in which the busted convertible is now traded as a fixed income investment, rather than an investment that has a varied income potential. Busted convertibles are a situation that many investors wish to avoid at all costs. When the market price for the underlying security falls to a point that the stock is more or less worthless, this means that the investor essentially has two options. The busted convertible can remain in the possession of the investor, who absorbs the total loss. Choosing to hold on to the busted convertible usually takes place is t
