Debenture Bond .December 30, 2020
In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term “debenture” originally referred to a document that either creates a debt or acknowledges it, but in some countries the term is now used interchangeably with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest. Although the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capital. Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories.
- A movable property
- Issued by a company in the form of a certificate of indebtedness
- Generally specifying the dates of redemption, repayment of principal and payment of interest
- May or may not create a charge on the assets of the company
- Corporations in the US often issue bonds of around $1,000, while government bonds are more likely to be $5,000
Security in different jurisdictions :
In the United States, debenture refers specifically to an unsecured corporate bond, i.e. a bond that does not have a certain line of income or piece of property or equipment to guarantee repayment of principal upon the bond’s maturity. Where security is provided for loan stocks or bonds in the US, they are termed ‘mortgage bonds’.
However, in the United Kingdom a debenture is usually secured.