I don't understand how the BBI/BEPPA "death spiral" is supposed...

I don't understand how the BBI/BEPPA "death spiral" is supposed to work.

Let's suppose that we're approaching 1 July 2012, when BEPPA holders can request Exchange. And let's suppose that BBI has no money - let's say they've managed to pay off their corporate debt, but they have no cash whatsoever left over and no hope of any further asset sales.

In this scenario, BBI's only option will be to convert the BEPPA to BBI shares. Faced with massive dilution, the BBI share price will fall effectively to zero - 0.1c - as the lower it gets, the worse the impending dilution will be, so there'll be positive feedback pushing the share price down. The 800 million BEPPA are going to convert to 1080 or so BBI each, wiping out the existing BBI holders completely - after conversion, BBI will have 800 billion shares on issue, almost all of them owned by one-time BEPPA holders.

But as 1 July 2012 approaches in this scenario, there's no reason for the BEPPA price to spiral down, provided BBI has positive net assets. If BBI's has $200 million in net assets, say, then the 800 million BEPPA might be worth around 25c each.

But I still think the BEPPA conversion in 2012 is largely irrelevant at the moment. It certainly shouldn't be keeping the BEPPA price down, and I think it's far enough away that it shouldn't be worrying BBI much either. The imminent risks are failure to roll-over debt as it matures and a breach of lending covenants.