Debenture

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In finance, a debenture is a long-term debt instrument used by governments and large companies to obtain funds. 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 unencumbered, and thereby leave them open for subsequent financing.

Debentures are generally freely transferrable by the debenture holder.

1 Debenture holders
2 Nomenclature
3 See also
- 3.1 Finding related topics

[edit] 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 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 [1]. Other stadia financed through the issue of debentures include Millennium Stadium, Wembley Stadium, Arsenal, Twickenham Stadium and Trent Bridge in Nottingham.

[edit] Nomenclature

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

In some countries (notably the United Kingdom), the term debenture is also frequently used by the legal profession as shorthand for a security document which creates fixed and floating charges over all of the property of the chargor. This usage derives from the frequent inclusion of provisions for security interests in conventional debt instruments.