Debenture
From Wikipedia, the free encyclopedia
A debenture (also called a note) is an unsecured corporate bond or a corporate bond that does not have a certain line of income or piece of property or equipment to guarantee repayment of principal upon the bond's maturity. Debentures are long-term debt instrument used by large companies to obtain funds. Where securities are offered, loan stocks or bonds are termed 'debentures' in the UK or 'mortgage bonds' in the US.
A corporation receives an advantage when it issues debentures (as opposed to issuing secured corporate bonds) because it means that the company does not have to set aside certain assets or income in order to guarantee against its default in paying back the principal at maturity. Therefore, a corporation that issues debentures may use those assets or funds that would otherwise be held a separate account for other financing activities. Debentures are generally freely transferable by the debenture holder. Debenture holders have no voting rights and the interest given to them is a charge against profit in company's financial statements.
In law, a debenture is a document that either creates a debt or acknowledges it. It is a medium to long-term borrowing facility created by a company. Where repayment is secured by a charge over land, the document is called a 'mortgage'. Where repayment is secured by a charge other assets of the company, the document is called a 'debenture'. Where no security is involved, the document is called a note or 'unsecured deposit note'.[1].
Contents |
[edit] Nomenclature
In practice, the distinction between bond and debenture is not always maintained. Bonds are sometimes called debentures and vice-versa[clarification needed].
[edit] Types
There are two types of debentures:
- Convertible Debentures, which are convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. "Convertibility" is a feature that corporations may add to the bonds they issue in order to make them more attractive to buyers. In other words, it is a special feature that a corporate bond may carry. As a result of the advantage a buyer gets from the ability to convert, convertible bonds typically have lower interest rates than non-convertible corporate bonds.
- Non-Convertible Debentures, which are simply regular debentures, cannot be converted into equity shares of the liable company. They are debentures without the convertibility feature attached to them. As a result, they usually carry higher interest rates than their convertible counterparts.
[edit] Usage in Sports
A large number of sporting organizations have used the issuing of debentures to allow their fans to gain a financial stake in the club, and to foster a sense of community. The organizers of the Wimbledon Tennis Championships, The All England Club, issue their debenture holders with a pair of tickets for each day of the tournament. Furthermore, only debenture holders are permitted to sell on their tickets to third parties.
Other sports organizations which issue debentures in a similar fashion include:
- Arsenal Football Club
- Hampden Park
- Wembley Stadium
- The Millennium Stadium
- Twickenham Stadium
- Nottinghamshire County Cricket Club
- Donington Park
In 2007 a group of debenture holders in the All England Club created the first website allowing debenture holders to sell tickets directly to members of the public. Formerly, most tickets sold to the general public were sold by ticket touts, who had purchased them from debenture holders for considerably less. The new website, http://www.wimbledondebentureholders.com , allows debenture holders to sell their own tickets without paying a middle man, thus making the tickets themselves considerably cheaper for consumers.[2] In 2008, the Millennium Stadium announced they were planning a similar scheme.
[edit] References
- ^ Chandra Gopalan (2007); Company Law in Singapore 3rd Edition; McGraw-Hill Education (Asia)
- ^ http://www.wimbledondebentureholders.com/
[edit] See also
- Floating charge
- Security interest
- Bond (finance)
- Gold exchange-traded fund
- Convertible debenture
- Non-convertible debenture
|
|||||||||||||||||
