Home / Debenture
Debentures are issued usually by large, financially strong companies with excellent bond ratings. One example of debenture is an unsecured bond. Debentures are long-term Debt Instrument issued by governments and big institutions for the purpose of raising funds. Debentures have some similarities with Bonds but the terms and conditions of securitization of Debentures are different from that of a Bond.
A Debenture is regarded as an unsecured investment because there are no pledges (guarantee) or liens available on particular assets.
Nonetheless, a Debenture is backed by all the assets which have not been pledged otherwise.Normally, Debentures are referred to as freely negotiable Debt Instruments. The Debenture holder functions as a lender to the issuer of the Debenture.
In return, a specific rate of interest is paid to the Debenture holder by the Debenture issuer similar to the case of a loan. In practice, the differentiation between a Debenture and a Bond is not observed every time. In some cases, Bonds are also termed as Debentures and vice-versa. If a bankruptcy occurs, Debenture holders are treated as general creditors.
The Debenture issuer has a substantial advantage from issuing a Debenture because the particular assets are kept without any encumbrances so that the option is open for issuing them in future for financing purposes.