Accounting Dictionary

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Detachable Warrant

Definition: Detachable warrants are issued with debt, which may trade separately from the debt instrument. Since they are detachable, the two elements of a debt offering exist independently and should be treated as separate securities. A holder of a detachable warrant may eventually exercise it and purchase the entity’s stock, or may allow it to expire.

The debt issuer includes the detachable warrants in its sale of the debt security in order to obtain a lower cash interest cost than would be possible without the warrants, while a buyer is interested in the profit it could earn by converting the warrants to stock if the entity’s stock price rises.