"What are Debentures and Indentures?"

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When a firm borrows money from a bank or lending institution it is common for a debenture to be created, there are many definitions and explanations of what a debenture actually is, a debenture is legally defined as:

 

“A promissory note or bond offered by a corporation to a creditor in exchange for a loan, the repayment of which is backed only by the general creditworthiness of the corporation and not by a mortgage or a lien on any specific property.”

 

Simply put a debenture is a document that records the borrowing of money by a company with reference to the debt. As such, debentures are security documents evidencing a debt, and repayment plans.

 

An Indenture is found within a debenture and outlines the security interests associated with the debt, which will come into action upon default of the borrowing party or any other named event stated in the indenture for example the launch of insolvency proceedings against the borrowing party.

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