Debenture
PPM.net assists companies and individuals with debenture offerings, debenture set up and debenture registration.
In law, a debenture is a document that either creates a debt or acknowledges such a debt. In corporate finance, the term ‘debenture’ is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note. See below for varying country interpretations. A debenture is therefore like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest. However, the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capital.
Freely Transferable Debentures
Debentures are generally freely transferable by the debenture holder. Debenture holders have no rights to vote in the company’s general meetings of shareholders, but they may have separate meetings or votes e.g. on changes to the rights attached to the debentures. The interest paid to them is a charge against profit in the company’s financial statements.
In the United States, debenture refers specifically to an unsecured corporate bond, i.e. a bond that does not have a certain line of income or piece of property or equipment to guarantee repayment of principal upon the bond’s maturity. Where security is provided for loan stocks or bonds in the US, they are termed ‘mortgage bonds’.
However, in the United Kingdom a debenture is usually secured.
In Asia, if repayment is secured by a charge over land, the loan document is called a mortgage; where repayment is secured by a charge against other assets of the company, the document is called a debenture; and where no security is involved, the document is called a note or ‘unsecured deposit note’.
There are two main types of debentures:
1. Convertible debentures, which are convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. “Convertibility” is a feature that corporations may add to the bonds they issue to make them more attractive to buyers. In other words, it is a special feature that a corporate bond may carry. As a result of the advantage a buyer gets from the ability to convert; convertible bonds typically have lower interest rates than non-convertible corporate bonds.
2. Non-convertible debentures, which are simply regular debentures, cannot be converted into equity shares of the liable company. They are debentures without the convertibility feature attached to them.
As a result, they usually carry higher interest rates than their convertible counterparts.
PPM.net can assist with your debenture offerings, or debenture set up and registration with Euro Settlement and Clearing, DTC and Clearstream.