Debenture

A debenture is an unsecured bond that is backed solely by the issuer's general credit standing and reputation rather than by specific assets or collateral. Most investment-grade corporate bonds are actually debentures — when a company like Microsoft or Apple issues bonds, they don't pledge specific assets; investors rely on the company's overall financial strength. Because debentures lack collateral protection, they carry slightly more risk than secured bonds and typically offer marginally higher yields. In a bankruptcy, debenture holders are classified as general creditors, ranking below secured bondholders but above preferred and common stockholders in the priority of claims. Subordinated debentures rank even lower, below senior debentures and other senior unsecured debt. Despite the lack of collateral, debentures from highly rated companies are considered very safe investments because these firms generate sufficient cash flows to service their debt. The term "debenture" has different meanings internationally — in the UK, it often refers to a secured bond, which is the opposite of the U.S. definition.