Log On America

Published 15 Apr 2002
Reference 5020
Region North America
Summary

This case discusses the potential benefits and costs of issuing floating-priced convertibles, also referred to as "death spirals". These are convertibles where the conversion price is a discount from the market price in a look-back period. The management of Log on America is blaming investment banks and convertible investors for the stock price collapse after the convertible was issued.

Teaching objectives

Comparing costs and benefits of floating priced convertibles with other methods of financing such as debt, equity and convertibles with a fixed conversion price. Acting as an "expert witness" in the lawsuit between LOA and CSFB: what is the cause of the stock price decline? Valuing floating-priced convertibles under different assumptions about contract design.

Keywords
  • Floating priced convertible
  • Death spiral convertible
  • Capital structure
  • Pipe
  • Option pricing
  • Financial innovation
  • Contract design. AR2002
  • RD0302