What it is:Debenturesarebondsthat are not secured by specific property orcollateral. Instead, they are backed by the full faith andcreditof theissuer, andbondholdershave a general claim on assets that are not pledged to otherdebt.How it works/Example:Let's consider a $100 millionbondissueby Company XYZ. If Company XYZ is willing to pledge $100 million of its assets to thebondholders(that is, let thebondholdersplace liens on specific assets that they may seize in the event ofdefault), giving them a little extra assurance that theywillbe paid on time, then thebondswould be considered securitized or asset-backed.However, if Company XYZ is exceptionally creditworthy (let's say it has significantcash flowand has never defaulted on any of its otherdebt), then placing liens on $100 million of assets (called encumbering the assets) may not be necessary to attract investors. Company XYZ couldissuedebentures instead. Holders of the Company XYZ debentures would have a claim to the assets not otherwise pledged to otherbondholders. So, if Company XYZ had $300 million of assets, but $100 million were pledged in a previousbondissue, then the holders of the debentures could lay claim to the other $200 million of assets in the ainterestent of default.#-ad_banner-#A great deal of corporate debt is in the form of debentures, but the government and government entities alsoissuedebentures (Treasury securities are one example). Like otherbonds, investors can purchase debentures throughbrokers. Debentures are usually issued in $1,000 or $10,000 denominations of varyingmaturities.Debentures often come with several key provisions designed to protectbondholders. First, the size of the debentureissueis usually limited to the amount of the initialissuein order to keep theissuerfrom overleveraging the company and diluting the power of the existingbondholders. Second, a "negative pledge clause" keepsissuersfrom pledging assets for another security if doing so would endanger the possibility ofrepaymenton current dbi. Third, a variety ofcovenantsoften require theissuerto maintain certain financial ratios or work within certain financial limits that lower the probability of default (covenants are common inbondissues). Fourth, many debentures require theissuerto pay interest to thebondholdersbefore it can make anydividendpayments.Why it Matters:It is important tonotethat even thoughdebenturesare not secured by specific pieces of property orcollateral, they do have a general claim on the assets andearningsof theissuer. Therefore, if theissuerwere toliquidate, the holders of the debenturebondshave a claim on any assets not specifically pledged to secure otherdebt. If there are nopledged assetsor nosecured debt, then the debentures have the first claim on all of the company's assets--along with all the other general creditors.Companies that are extremely creditworthy often have no reason to pledge specific assets in order to sell abondissuebecause they'll still pay relatively low interest rates. (This is why debentures from creditworthyissuerscan sometimes sell for more than asset-backedbondsof less creditworthyissuers.) Sometimesissuersalso want to leave their assetsunencumberedin order to make future financings possible.However, exceptional creditworthiness is not the reason some companiesissuedebentures. If a company has already pledged all of its assets to other creditors and still needscapital, it may have no other choice than to try to sell debentures. In these cases, the debentures are riskier, and they usually rank below all the secured debt the company has alreadyissued. Debentures in this case usuallyofferhigher coupons tfo attract investors.Subordinated debenturebondsare a specific type of debenture that ranks after senior debt, regular debentures, and sometimes even after certain general creditors. They are low on the list ofdebtsto be paid, and thus theirissuershave toofferhigher interest rates and even theoptionto convert tosharesin some cases.http://www.investinganswers.com/financial-dictionary/bonds/debentures-1047

Debenture - What is a debenture?Defintion: A debenture is a medium to long-term debt format that is used by large companies to borrow money.Debentures are the most common form of long-term loans that can be taken by a company.

Debentures are usually loans that are repayable on a fixed date, but some debentures are irredeemable securities (these are sometimes called perpetual debentures).

Most debentures pay a fixed rate of interest. It is required that this interest is paid prior todividendsbeing paid to shareholders. Furthermore, most debentures are secured on the borrowers assets, although some are not (these can be known as naked or unsecured debentures most debentures in the USA are unsecured).Debentures are most often used by large companies to borrow moneyDebenture holdersDebenture holders (investors) do not have any rights to vote in the company's general meetings of shareholders, but they may have separate meetings or votes e.g. on changes to the rights attached to the debentures.

The interest paid to debenture holders is calculated as a charge against profit in the company's financial statements.AdvantagesThe main advantage of debentures to companies is the fact that they have a lower interest rate than e.g. overdrafts. Also, they are usually repayable at a date far off in the future.

For an investor, their main advantages are that they are often easy to sell in stock exchanges and they contain less risk than e.g. equities.Convertible vs. non-convertibleThere are two types of debentures:

Convertible debentures:Convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. Convertible bonds are more attractive to investors since the bonds have the ability to convert and also attractive to companies since they typically have lower interest rates than non-convertible corporate bonds.

Non-convertible debentures:regular debentures which cannot be converted into equity shares of the liable company. Since they are not able to convert, they usually carry higher interest rates than convertible debentures.

https://www.e-conomic.co.uk/accountingsystem/glossary/debenture

Debenture[Latin,Aredue.]Apromissorynoteorbondofferedbyacorporationtoacreditorinexchangeforaloan,therepaymentofwhichisbackedonlybythegeneralcreditworthinessofthecorporationandnotbyamortgageoralienonanyspecificproperty.DebenturesareusuallyofferedinissuesunderanIndenture,adocumentthatsetsthetermsoftheexchange.Adebentureisusuallyabearerinstrument.Whenitispresentedforpayment,thepersoninpossessionofitwillbepaid,evenifthepersonisnottheoriginalcreditor.Couponsrepresentingannualorsemi-annualpaymentsofinterestonthedebtareattached,tobeclippedandpresentedforpaymentontheirduedates.Theymaybedepositedin,andcollectedby,thebanksofholdersofthedebentures,thecreditorsofthecorporation.Aconvertibledebentureisonethatcanbechangedorconverted,attheoptionofitsholder,intosharesofstock,usuallycommonstock,atafixedratioasstatedintheindenture.Theratiocanbeadjustedinlightofstockdividends;otherwisethevalueofconvertingthedebtintoSecuritieswouldbeworthlessthanretainingthedebentureuntilitsdateofmaturity.Asubordinatedebentureisonethatwillberepaidonlyafterothercorporatedebtshavebeensatisfied.Aconvertiblesubordinatedebentureisonethatissubjectorsubordinatetothepriorrepaymentofotherdebtsofthecorporationbutwhichcanbeconvertedintoanotherformofsecurity.Asinkingfunddebentureisonewherebyrepaymentissecuredbyperiodicpaymentsbythecorporationintoasinkingfund,anamountofmoneymadeupofcorporateassetsandearningsthataresetasidefortherepaymentofdesignateddebenturesandlong-termdebts.

http://legal-dictionary.thefreedictionary.com/debenture

ADebentureis a long-term Debt Instrument issued by governments and big institutions for the purpose of raising funds. The Debenture has 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 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.Collaterals:Collaterals are assets or properties which are provided to secure a loan or any other type of credit. If there is a default, Collateral is a subject of seizure. Collateral is a type of security provided to the lender if there is a default on behalf of the borrower in repayment of loan. For instance, if a person takes a mortgage loan, the Collateral would be his house.

Debentures are categorized into the following types:

Convertible Debentures: This is a debenture which can be converted into some other type of securities (for example stocks). Corporate Debentures: Corporate Debentures are Debentures issued by companies and they are insecure in nature. Bank Debentures: This type of Debentures is issued by banks. Government Debentures: These include Treasury bond (T-Bond) and Treasury bill (T-Bill) issued by the government. They are usually regarded as risk-free investments. Subordinated Debentures: This is a particular type of Debenture, which ranks below regular Debentures, senior debt, and in some instances below specific general creditors. Corporation Debentures: Corporation Debentures are issued by various corporations. Exchangeable Debentures: They are like Convertible Debentures, but this Debenture can only be converted to the common stock of a subsidiary company or affiliated company of the Debenture issuer.

There are some other types of Debentures such as Senior Debentures, Secured Debentures, Exchange Debentures, Secured Convertible Debentures, Convertible Senior Debentures, Unsecured Convertible Debentures, Subordinated Convertible Debentures, Senior Secured Convertible Debentures, Junior Subordinated Debentures, Senior Subordinated Debentures, and Senior Secured Debentures etc.