#Death spiral financing pro#

This chapter begins with a brief description of the uninsured population and then explores the forces underlying current trends in private and public health coverage. Health care costs are rising, increases in health insurance premiums outpace the limited growth of typical family incomes, continuing changes in the workplace diminish the availability of employer-sponsored health insurance (ESI), unemployment is climbing, and severe pressures on state budgets threaten to reverse the recent expansion of public coverage for children and adults (Baicker and Chandra, 2006 Bernstein, 2008 Chernew et al., 2005 Dorn et al., 2008 Gould, 2007 Holahan and Cook, 2008 Reschovsky et al., 2006 Smith et al., 2008). Large increases in unemployment will further fuel the decline in the number of people with employer-sponsored coverage and put additional stress on state Medicaid and State Children’s Health Insurance Programs (SCHIP) programs.Ī number of ominous signs point to a continuing decline in health insurance coverage in the United States. With a severely weakened economy and rising health care costs, some states will face pressures to cut their recent expansions of public programs for low-income children and adults.

#Death spiral financing pro#

For many individuals and families without employer-sponsored group coverage, nongroup coverage is pro hibitively expensive. Overall, fewer workers, particularly among those with lower wages, are offered employer-sponsored coverage and fewer among those offered insurance can afford the premiums. In some industries, employers have relied more heavily on jobs without health benefits, includ ing part-time and shorter-term employment, and contract and temporary jobs. Employment has shifted away from industries with traditionally high rates of coverage (e.g., manufacturing) to service jobs (e.g., in wholesale and retail trades) with historically lower rates of coverage. Health care costs and insurance pre miums are growing at rates greater than the economy and family incomes. US regulators clamped down on MSCB issuance after shark financiers drove dozens of small companies out of business by shorting their shares and intentionally triggering such spirals.Abstract: This chapter examines the dynamics underlying the continuing decline in health insurance coverage. In some cases a spiral of declines and share issues ensues, sharply diluting existing shareholders' stakes.

Indeed, a falling share price can mean bigger profits for bankers, since the further the stock falls the more shares the bank receives. The strike price can be a discount, typically 10%, meaning the underwriting bank wins even if the shares fall. Unlike regular convertible bonds, which convert to shares at a fixed price, MSCBs convert at strike price that is periodically re-set to reflect moves in the share price. Yano and other activist shareholders want the association to require firms to obtain shareholder approval for any security issuance that could dilute existing investors' stakes by 20% or more. 'Japanese companies have a long history of not paying due regard to their shareholders, and the MSCB debate is a product of that history.' At the request of the regulatory Financial Services Agency, the Japan Securities Dealers Association is mulling whether to adopt stricter rules on issuance of MSCBs.

'In most cases MSCB issuance doesn't benefit existing investors,' said Tomomi Yano, executive director at the Pension Fund Association, a vocal advocate of corporate governance. A possible move by Japanese regulators to restrict so-called 'death spiral' corporate financing has drawn cheers from shareholder activists and objections from business groups and investment bankers.ĭeath spiral financing, which involves the sale to investment banks of high-risk securities known as moving strike convertible bonds (MSCBs), can quickly deliver needed cash to an issuing firm at the expense of its share price.Īlthough relatively new to Japan, MSCBs have soared in popularity even as their reputation has come under fire - hurt in part by their association with scandal-hit Japanese Internet firm Livedoor, which used MSCBs to finance a takeover bid last year.