Debenture

A debenture is a fixed income financial instrument which pays regular interest and has a set maturity date. In most respects it is like a bond, and the term bond is often used to mean both bond and debentures. The main difference between the two is that a bond is secured against a specific asset of a company or government, while a debenture is secured only against the general credit of the issuer. (In North America, anyhow.) So if the issuer were to go under, a debenture would be a less protected investment than a bond.

In practice, this is only really a concern with corporate debentures - most governments are unlikely to go under (and if they do, you have more serious problems than worrying about your investments), and even if they do find themselves short on cash, they have the power to levy taxes or print more money to pay them off. Of course, the government would have to be really desperate to do that, since it would depress their economy and send their currency's inflation sky-high, making foreign investors very unwilling to invest in them, but that the power exists means that most government debentures are considered fairly secure.

De*ben"ture (?; 135), n. [L. debentur they are due, fr. debere to owe; cf. F. debentur. So called because these receipts began with the words Debentur mihi.]

1.

A writing acknowledging a debt; a writing or certificate signed by a public officer, as evidence of a debt due to some person; the sum thus due.

2.

A customhouse certificate entitling an exporter of imported goods to a drawback of duties paid on their importation. Burrill.

It is applied in England to deeds of mortgage given by railway companies for borrowed money; also to municipal and other bonds and securities for money loaned.

 

© Webster 1913

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De*ben"ture, n.

Any of various instruments issued, esp. by corporations, as evidences of debt. Such instruments (often called debenture bonds) are generally, through not necessarily, under seal, and are usually secured by a mortgage or other charge upon property; they may be registered or unregistered. A debenture secured by a mortgage on specific property is called a mortgage debenture; one secured by a floating charge (which see), a floating debenture; one not secured by any charge a naked debenture. In general the term debenture in British usage designates any security issued by companies other than their shares, including, therefore, what are in the United States commonly called bonds. When used in the United States debenture generally designates an instrument secured by a floating charge junior to other charges secured by fixed mortgages, or, specif., one of a series of securities secured by a group of securities held in trust for the benefit of the debenture holders.

 

© Webster 1913