A detachable warrant is a derivative that is attached to a debt security, giving the owner the right to buy a certain number of shares of the issuer at a fixed exercise price. The debt issuer includes the detachable warrants in its sale of the debt security in order to obtain a lower interest rate 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.
A warrant contains the following information:
The time period during which the holder can exercise the right to buy the issuer's shares
The exercise price at which the shares can be purchased
The number of shares that can be purchased
Since this type of warrant is detachable from the debt security with which it is paired, 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 allow it to expire.