debenture

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Debentures refer essentially to unsecured bonds within the United States. Corporations and governments use debentures as long term funding options, usually for major expansions and projects in the case of corporations. Debentures have set interest rates, payback periods, and regular interest payments as most other bonds do. If the issuing corporation were to go bankrupt, holders of debentures rank higher in bankruptcy than do regular stockholders in getting paid.

In many other countries, debentures have different meanings. For example, in the United Kingdom, debentures typically refer to some form of secured debt instrument. In Canada, a debenture is not necessarily tied to specific assets but rather is treated as a secured creditor in bankruptcy proceedings, receiving better treatment than in the United States. Overall, a lot of the world uses debentures to refer to some form of secured debt, and one should look to local usage of the term to determine its meaning and treatment as a debt instrument. 

[Last updated in January of 2022 by the Wex Definitions Team]