2.9.1 Debentures

Question 1

What are Debentures?

Answer 1

Bonds not secured by a collateral but simply by the “full faith and credit” of the issuer.

Question 2

Debentures are generally issued by_______?

Answer 2

Well-established companies with high credit ratings

Question 3

Can less creditworthy companies issue Debentures?

Answer 3

They can, but they will have to add protective covenants to provide assurance for the potential bondholder.

Question 4

What assets do debenture bondholders have claim to?

Answer 4

They have a claim on all the assets not pledged to secure other debt. They also have a claim on pledged assets, to the extent that these assets yield more than is needed to satisfy secured creditors.