Empirical methods Prescriptive and policy In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.
The English commercial judge, Lord Lindley, notably remarked in one case: "Now, what the correct meaning of 'debenture' is I do not know.
There are also other features that minimize risk, such as a "sinking fund", which means that the debtor must pay some of the value of the bond after a specified period of time.
A sinking fund makes the bond less risky, and therefore gives it a smaller "coupon" (or interest payment).
Bondholders who have not received their interest can throw an offending company into bankruptcy, or seize its assets if that is stipulated in the contract.
Like other secured debts, the debenture gives the debtor priority status over unsecured creditors in a bankruptcy.