A debenture is a long-term, unsecured (naked) corporate bond. This definition matters because it comes up often in corporate bond questions, including on the Series 7 exam.
In terms of risk, debentures are riskier than secured corporate bonds. Because there’s no collateral backing them, debentures are full faith and credit bonds. The issuer is legally obligated to repay the borrowed funds, but if the corporation goes bankrupt, bondholders don’t have a specific asset pledged to them that they can claim. Because of this added risk, debentures are typically issued with higher coupons and trade in the market at higher yields (which means lower prices).
A debenture is one of many forms of long-term corporate debt, which is sometimes called funded debt. This term reflects that corporations have long periods of time to use the funds raised through a bond issuance.
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