What are debentures and how are they different from bonds? - ProProfs Discuss
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What are debentures and how are they different from bonds?



Asked by Henry, Last updated: Nov 23, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Bonds and debentures are similar but with a few minor and important differences. they are both debt instruments that signify a corporation has borrowed money, will pay interest on the loan and will pay the loan back at a specified time. the major differences: bonds rank higher than debentures, which means if a company goes bankrupt, bond holders get their money back first. the other major difference is based on how they are secured. bonds are secured by specific assets owned by the company. if the company becomes insolvent, bond holders have the right to claim those specific assets to get their money back. debentures are not secured by any specifically named assets. so debenture holders must wait until bondholders are paid and before debenture holders can start collecting their money.
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