Why is convertible bond are classified as debt securities?

Convertible bonds are classified as debt securities because they represent a loan made by the bondholder to the issuer, typically a corporation. They pay interest like traditional bonds and have a set maturity date, which are characteristics of debt instruments. However, they also grant the bondholder the option to convert the bond into a predetermined number of the issuer's equity shares, allowing for potential upside if the company's stock performs well. This hybrid nature combines features of both debt and equity, but their fundamental classification as debt stems from their primary function as a loan obligation.