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[Latin, Are due.] A promissory note or bond offered by a corporation to a creditor in exchange for a loan, the repayment of which is backed only by the general creditworthiness of the corporation and not by a mortgage or a lien on any specific property.
Debentures are usually offered in issues under an Indenture, a document that sets the terms of the exchange. A debenture is usually a bearer instrument. When it is presented for payment, the person in possession of it will be paid, even if the person is not the original creditor. Coupons representing annual or semi-annual payments of interest on the debt are attached, to be clipped and presented for payment on their due dates. They may be deposited in, and collected by, the banks of holders of the debentures, the creditors of the corporation.
A convertible debenture is one that can be changed or converted, at the option of its holder, into shares of stock, usually common stock, at a fixed ratio as stated in the indenture. The ratio can be adjusted in light of stock dividends; otherwise the value of converting the debt into Securities would be worth less than retaining the debenture until its date of maturity.
A subordinate debenture is one that will be repaid only after other corporate debts have been satisfied. A convertible subordinate debenture is one that is subject or subordinate to the prior repayment of other debts of the corporation but which can be converted into another form of security.
A sinking fund debenture is one whereby repayment is secured by periodic payments by the corporation into a sinking fund, an amount of money made up of corporate assets and earnings that are set aside for the repayment of designated debentures and long-term debts.
n. a form of bond certificate issued by a corporation to show funds invested, re-payment of which is guaranteed by the over-all capital value of the company under certain specific terms. Thus, it is more secure than shares of stock or general bonds.
debenturenoun bond, negotiable instrument, paper money, pledge, title deed
See also: bond, charge, check, contract, draft, instrument, lien, note, pledge, security, specialty
debenturea document, almost invariably by or on behalf of a company, that creates or acknowledges a debt owed by the company. The term includes debenture stock, bonds and other debt securities issued by a company. Companies usually keep a register of debenture holders. It is a word without precise definite signification. Normally, debentures are issued in connection with secured borrowings and incorporate a fixed or floating charge, but this is not strictly necessary, and debentures can be used in connection with unsecured borrowings.
DEBENTURE. A certificate given, in pursuance of law, by the collector of a port of entry, for a certain sum, due by the United States, payable at a time therein mentioned, to an importer for drawback of duties on merchandise imported and exported by him, provided the duties arising on the importation of the said merchandise shall have been discharged prior to the time aforesaid. Vide Act of Congress of March 2, 1799, s. 80; Encyclopedie, h.t.; Dane's Ab. Index, h.t.