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Simple English definitions for legal terms
debenture bond
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A quick definition of debenture bond:
A debenture bond is a type of loan that a company takes out. It is not secured by any specific asset, but rather by the company's ability to earn money. This means that if the company cannot pay back the loan, the lender cannot take any specific property or asset to recover their money. Instead, they rely on the company's reputation and creditworthiness to pay back the loan. Sometimes, a debenture bond can be converted into stock in the company. There are different types of debenture bonds, such as sinking-fund debentures, subordinate debentures, and convertible debentures. In the past, the word "debenture" was used in different ways, such as to describe a certificate for goods supplied to the Royal Household or a customhouse certificate for a refund of duties on imported goods.
A more thorough explanation:
A debenture bond is a type of bond that is not secured by any specific asset, but rather by the general credit and financial reputation of the corporate issuer. It is an instrument that acknowledges a debt owed by the issuer to the bondholder.
For example, if a company issues a debenture bond, it is essentially borrowing money from investors and promising to pay it back with interest. However, unlike a secured bond, which is backed by a specific asset, such as property or equipment, a debenture bond is not backed by any collateral.
There are different types of debenture bonds, such as:
- Convertible debenture: a debenture that can be converted into another security, such as stock.
- Sinking-fund debenture: a debenture that is secured by periodic payments into a fund established to retire long-term debt.
- Subordinate debenture: a debenture that is subject to the prior payment of ordinary debentures and other indebtedness.
Overall, a debenture bond is a way for companies to raise capital without having to put up any specific assets as collateral. However, because it is not secured by any specific asset, it is generally considered to be a riskier investment than a secured bond.