Debt that can be converted from debt to equity, usually at the option of the debt holder. Convertible debt provides the debt holder with preferred protection as a creditor of a company, but with the potential to convert the debt to common stock if the value of the common stock on conversion exceeds the principal and interest owed by the company to the debt holder. Convertible debt is conceptually similar to convertible preferred stock, but since the convertible debt is a debt security rather than an equity security, the convertible debt would be repaid prior to preferred stock in the event of a sale or liquidation.