In deposit terminology, the term Debentures refers to a certificate issued by a person or corporation with the purpose of acknowledging or creating a debt. Debentures are generally unsecured by assets and are interest bearing securities.
For example, most Debentures are essentially unsecured bonds issued by corporations relying on the credit worthiness of the issuer for their distribution, although a Debenture in the United Kingdom is usually a secured debt. The interest income that holders of Debentures receive is generally derived from a company’s corporate profits. Some Debentures feature a convertibility option, whereby the Debenture can be converted into shares of the corporation’s common stock. These securities are known as convertible Debentures. Because of the convertibility feature of these securities, they typically carry lower interest rates than Debentures without the convertibility feature. In the case that the corporation goes into bankruptcy, the Debenture holders get treated as general creditors.