meaning of Debenture

by sabitha 2010-05-06 15:49:50

A type of fixed-interest security, issued by companies (as borrowers) in return for medium and long-term investment of funds. A debenture is evidence of the borrower's debt to the lender. The word derives from the Latin debeo, meaning 'I owe'. Debentures are issued to the general public through a prospectus and are secured by a trust deed which spells out the terms and conditions of the fundraising and the rights of the debenture-holders. Typical issuers of debentures are finance companies and large industrial companies. Debenture-holders' funds are invested with the borrowing company as secured loans, with the security usually in the form of a fixed or floating charge over the assets of the borrowing company. As secured lenders, debenture-holders' claims to the company's assets rank ahead of those of ordinary shareholders, should the company be wound up; also, interest is payable on debentures whether the company makes a profit or not. Debentures are issued for fixed periods but if a debenture-holder wants to get his or her money back, the securities can be sold.

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