debenture

Long-term loan raised by a company through the issue of debenture certificates, using its assets as security for repayment, normally to be redeemed at a future date. Debentures are typically secured, often on property, and pay a fixed rate of interest that has priority over dividend payments. Some debentures are not repayable, called irredeemable securities, and some are not secured, called naked debentures. In the USA, debentures are usually unsecured. Debentures can be issued in large numbers as debenture stock. This form of loan is attractive to companies because it does not dilute equity, is cheaper than a conventional overdraft, and is usually repayable over a long period.