Degradation begins inside macrophages of the spleen, which remove old and damaged erythrocytes from the circulation.
In the first step, heme is converted to biliverdin by the enzyme heme oxygenase (HO). NADPH is used as the reducing agent, molecular oxygen enters the reaction, carbon monoxide (CO) is produced and the iron is released from the molecule as the ferrous ion (Fe). CO acts as a cellular messenger and functions in vasodilation.
In addition, heme degradation appears to be an evolutionarily-conserved response to oxidative stress. Briefly, when cells are exposed to free radicals, there is a rapid induction of the expression of the stress-responsive heme oxygenase-1 (HMOX1) isoenzyme that catabolizes heme (see below). The reason why cells must increase exponentially their capability to degrade heme in response to oxidative stress remains unclear but this appears to be part of a cytoprotective response that avoids the deleterious effects of free heme. When large amounts of free heme accumulates, the heme detoxification/degradation systems get overwhelmed, enabling heme to exert its damaging effects.
In the second reaction, biliverdin is converted to bilirubin by biliverdin reductase (BVR):
Bilirubin is transported into the liver by facilitated diffusion bound to a protein (serum albumin), where it is conjugated with glucuronic acid to become more water-soluble. The reaction is catalyzed by the enzyme UDP-glucuronosyltransferase.
This form of bilirubin is excreted from the liver in bile. Excretion of bilirubin from liver to biliary canaliculi is an active, energy-dependent and rate-limiting process. The intestinal bacteria deconjugate bilirubin diglucuronide releasing free bilirubin, which can either be reabsorbed or reduced to urobilinogen by the bacterial enzyme bilirubin reductase. 
Some urobilinogen is absorbed by intestinal cells and transported into the kidneys and excreted with urine (urobilin, which is the product of oxidation of urobilinogen, and is responsible for the yellow colour of urine). The remainder travels down the digestive tract and is converted to stercobilinogen. This is oxidized to stercobilin, which is excreted and is responsible for the brown color of feces.