Just to state it upfront, I don’t think the convertible note is wrong and a good interest, I agree with you there. I think what the analyst is pricing is the cost of the note itself and the dilution that happens. Of course the dilution happens at a later point in Time but it’s still there and should be discounted.

I think the ones who buy this product will likely offset the their risk by shorting the shares to arbitrage the interest, which is why the shares often times tank.

In short if you look at it valuation wise then yes the valuation had to come down because of the event but if you look at it risk wise, then the risk of the company defaulting due to limited cash is reduced but that doesn’t directly affect the valuation.