A debenture is a certificate of debt by which a company or other borrower promises to pay a fixed rate of interest on a loan provided by a lender (typically an investor).
The term carries somewhat different meanings in different jurisdictions. In Commonwealth countries it refers to specific categories of secured debt instruments. In the United States the term is used more generally to describe uncollateralized bonds.
Like bonds, debentures may be unsubordinated or subordinated. Holders of unsubordinated debentures have a greater claim to repayment in the event of borrower bankruptcy than holders of subordinated debentures.
Unlike shares, debentures do not serve as title deeds to a portion of a company’s stock. They are simply promissory notes and repayment of debenture principal is entirely dependent on the creditworthiness of a debenture’s issuer.
Debentures can typically be transferred between owners and are sometimes traded on securities exchanges.
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