Debentures

In financial context, Debentures are Debt Instruments issued for a long term by governments and big institutions for raising funds. The Debenture has some resemblances with Bonds but the securitization terms and conditions are different for Debentures compared to a Bond. A Debenture is commonly considered as insecure because there is no pledge (guarantee) or lien on particular assets. Nevertheless, a Debenture is secured by all the assets which are not pledged otherwise. If there is a bankruptcy, Debentureholders will be counted as general creditors. The benefit that the issuer enjoys from issuing a debenture is that they keep particular assets free of encumbrances so the option is open to issue them for future financing.

Usually, Debentures are freely negotiable Debt Instruments. The Debentureholder works as a lender to the Debenture issuer. In return, the Debenture issuer pays interest to the Debentureholders as it is paid in case of a loan. In practical application, the difference between a Bond and a Debenture is not always kept. In some instances, Debentures are also referred as Bonds and vice-versa.