long-term debt instrument that is not secured by a mortgage or other lien on specific property. Because it is unsecured debt, it is issued usually by large, financially strong companies with excellent bond ratings. There are two kinds of debentures: a senior issue and asubordinated(junior) issue, which has a subordinate lien. The order of a prior claim is set forth in the bond indenture. Typically, in the event of liquidation, subordinated debentures come after senior debt.
unsecured promise to pay, backed only by the general credit of the issuer. Debentures, like corporate bonds, are issued under a deed of trust or indenture Some debentures can be exchanged for common stock at a specific price and are called convertible debentures. Contrast with bond.
debt secured only by the general credit or promise to pay of the issuer. Debentures are the common type of bond issued by large, well-established corporations. Holders of debentures representing corporate indebtedness are creditors of the corporation and entitled to payment before shareholders upon dissolution of the corporation.
general debt obligation backed only by the integrity of the borrower and documented by an agreement called an indenture. An unsecured bond is a debenture.
unsecured bond. The only protection for the lender is the credit and reputation of the borrower. The method of evaluating the quality of debentures is to analyze the earning power, overall status, and outlook of the borrowing corporation.
an unsecured note or bond.
Example: Abel invests in debentures of the XYZ Corporation; Baker invests in a first mortgage on a building owned by XYZ Corporation. The XYZ Corporation bankruptcy. Ultimately Baker receives full payment for the mortgage upon the foreclosure sale. Abel is a general creditor and receives only 18 cents per dollar owed to him.
