Debentures

Meaning

When a Company desires to borrow a considerable sum of money for its expansion, it invites the general public to subscribe to its Debentures. A debenture is a certificate issued by the company acknowledging the debt due by it to its holders and is issued by means of a prospectus in the same manner as shares. A debenture is a written instrument acknowledging a debt and containing provision as regards the repayment of principal and the payment of interest at a fixed rate. A debenture includes debentures, stock, bonds and any other securities of a company whether constituting a charge on the assets of the company or not. A Debenture is a long-term Debt Instrument issued by governments and big institutions for the purpose of raising funds. Usually, Debentures are freely negotiable Debt Instruments. The Debenture-holder works as a lender to the Debenture issuer. In return, the Debenture-holders is paid interest as it is paid in case of a loan. In finance, a debenture is a long-term debt instrument used by governments and large companies to obtain funds. It is defined as “a debt secured only by the debtor’s earning power, not by a lien on any specific asset.” It is similar to a bond except the securitization conditions are different. A debenture is usually unsecured in the sense that there are no liens or pledges on specific assets. It is, however, secured by all properties not otherwise pledged. In the case of bankruptcy debenture holders are considered general creditors.

Definition

“A bond issued without specific security. In the event of a crisis, holders of debentures take a back seat to other bondholders. To compensate for the added risk, debentures usually pay higher interest than secured bonds, or offer conversion to common stock.”

“Any debt obligation backed strictly by the borrower’s integrity, e.g. an unsecured bond. A debenture is documented in an indenture.”

“A promissory note that is backed by the general credit of the issuing company. Unlike a mortgage bond, a debenture is generally not secured by a mortgage or lien on any specific property”

“A long-term debt instrument issued by corporations or governments that is backed only by the integrity of the borrower, not by collateral. A debenture is unsecured and subordinate to secured debt. A debenture is unsecured in that there are no liens or pledges on specific assets”

“A corporate debt security backed solely by the financial strength of the issuer and not by any specific assets.”