debenture

debenture

[dih-ben-cher]
debenture, document acknowledging indebtedness. In Great Britain a debenture is practically the same as a bond, and debenture stock is similar to preferred stock. In the United States the term is usually employed for a corporation certificate without special security, such as a mortgage, to back it up. Debentures are generally issued by service corporations that have few mortgageable assets, or by blue-chip companies that are stable enough to invite unsecured loans. In a typical debenture, the corporation promises to repay the principal either periodically or on a specified date, and with regular interest. The term is also used for a document by which a government is bound to pay a creditor money due after some condition has been fulfilled.
A debenture is defined as a certificate of agreement of loans which is given under the company's stamp and carries an undertaking that the debenture holder will get a fixed return (fixed on the basis of interest rates) and the principal amount whenever the debenture matures.

In finance, a debenture is a long-term debt instrument used by governments and large companies to obtain funds. It is defined as "a debt secured only by the debtor’s earning power, not by a lien on any specific asset. It is similar to a bond except the securitization conditions are different. A debenture is usually unsecured in the sense that there are no liens or pledges on specific assets. It is, however, secured by all properties not otherwise pledged. In the case of bankruptcy debenture holders are considered general creditors.

The advantage of debentures to the issuer is they leave specific assets burden free, and thereby leave them open for subsequent financing. Debentures are generally freely transferrable by the debenture holder. Debenture holders have no voting rights and the interest given to them is a charge against profit.

Debenture holders

In the United Kingdom debentures have frequently been used as a mechanism for raising funds to build or finance sports or leisure venues. Often these debentures pay little or no interest, but entitle the holder to privileges, usually tickets for the venue. For example, the All England Lawn Tennis and Croquet Club first issued debentures in 1920 in order to purchase the current premises in Wimbledon, London, and debenture issues take place every five years. The 2001-2005 debenture issue was priced at £2,000 each, with an additional premium of £18,000, and Value Added Tax of £3,150; holders of these debentures are entitled to a free seat in the Centre Court Stand for each day of the championships for five years, and have access to exclusive lounge and catering facilities. At the Royal Albert Hall debenture holders are known as members; they own rights to individual boxes, and are entitled to view almost all performances. In 2003 Box 70 was offered on the open market for £250,000 . Other stadia financed through the issue of debentures include Millennium Stadium, Wembley Stadium, The Emirates, Twickenham Stadium, Lord's Cricket Ground, and Trent Bridge in Nottingham.Thiru

Nomenclature

In practice the distinction between bond and debenture is not always maintained. Bonds are sometimes called debentures and vice-versa.

References

See also

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