I like this. Instruments that look like debt (terms and interest rates) generally are the instruments of lower risk investors. Linking them to equity is the game of wall street arb desks. Turning the instrument into a warrant is more in lines with high stage early equity investing - giving folks an option on a potentially large upside.
How do wall street arbitrage desks link equity and debt? While I'm sure there's some degree of correlation, it appears that debt securities tend to be much more longer viewed than equity.
You can think of a convertible bond as a bond, with an option on the stock. So the bond may be worth $100, and the option to buy the stock might be worth $20. Since convertible bonds aren't liquid, and the implied option may be hard to short, the $120 combined price is really just theoretical. If the convert trades at $110, then the buyer will buy the convert, and then try to short the debt (either shorting another bond from the same company, or with CDS), shorting some amount of stock (Perhaps a half share per option calculated with Black-Sholes or another option pricing method, or perhaps going short a similar option).
Does this make sense? If not, I can try to write it in more clear English.
