Meaning of Debentures: A debenture is a debt instrument issued by a company or government. It represents a loan made by the issuer to investors in exchange...
Meaning of Debentures:
A debenture is a debt instrument issued by a company or government. It represents a loan made by the issuer to investors in exchange for a fixed interest payment and repayment of the principal amount at a later date.
Types of Debentures:
Debentures can be categorized into two main types based on the structure and purpose of the issue:
Senior Debentures: These are long-term debt instruments with a maturity of more than 5 years. They carry higher risk and interest payments compared to other types of debentures.
Junior Debentures: These are issued with shorter maturity periods (generally less than 5 years). Junior debentures typically offer lower interest rates compared to senior debentures.
Examples:
Senior Debentures: A company issuing 10% Senior Bonds with a maturity of 10 years would be a senior debenture.
Junior Debentures: A government issuing 5% Junior Bonds with a maturity of 3 years would be a junior debenture.
Additional Points:
Debentures can be issued with different covenants, including fixed interest payments, floating interest rates based on market conditions, or a combination of both.
Interest payments are typically paid on a semi-annual or annual basis, depending on the terms of the indenture.
Debentures can be issued with different purposes, such as financing capital expenditures, expanding operations, or securing debt financing.
Investors who purchase debentures receive a debt instrument in exchange for their money, which they are obligated to repay along with the interest payments