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Simple English definitions for legal terms
naked debenture
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A quick definition of naked debenture:
A naked debenture is a type of bond that a company issues to borrow money. Unlike other bonds, it is not secured by any specific asset or property. Instead, it is backed only by the company's reputation and ability to pay back the debt. This means that if the company cannot pay back the debt, the bondholders may not have any assets to claim as collateral.
A more thorough explanation:
A naked debenture is a type of bond that is not secured by any specific asset or property. It is backed only by the general credit and financial reputation of the corporate issuer. This means that if the company defaults on the bond, the bondholders have no claim to any specific assets of the company.
- Convertible debenture: A debenture that can be converted into some other 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.
For example, if a company issues a convertible debenture, the bondholders have the option to convert their bonds into stock if they choose to do so. This gives them some flexibility and potential for greater returns. However, if the company defaults on the bond, the bondholders still have no claim to any specific assets of the company.