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Unformatted text preview: What is a debenture? Why do you think that this is the most common form of corporate bond in the United States? Is it is much less commonly used elsewhere? Corporations issue bonds to raise money to expand their businesses, cover operating costs, or finance corporate takeovers or reorganizations. Corporate bonds are debt obligations issued by corporations. Corporate bonds may be either secured or unsecured. Debentures are unsecured bonds, which means that bondholders have nothing but the corporation's promise that interest payments will be made on time, or made at all. This promise is often called "full faith and credit." (Business Finance, 2010). Debentures are not backed by equipment, securities portfolios, mortgages on real estate, or any other specific assets. Instead of guaranteed collateral, debenture-holders are secured in their principal investment by the general credit of the issuer. Thus, while secured bondholders have priority over debenture-holders in the event of default or bankruptcy, debenture-holders have the...
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- Spring '11