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Debt Security
Practical Law Glossary Item 0-382-3387 (Approx. 2 pages)
Glossary
Debt Security
A bond is a debt instrument that is known, in some contexts, as a debt security, debenture, or note. A bond is considered a loan made by an investor to a corporation, government, or other entity in which the issuer typically agrees to pay the owner the face value of the bond on a future date, and to pay interest at a specified rate at regular intervals throughout the life of the bond. Debt securities sold in offerings registered with the SEC generally must be issued under an indenture.
There are several types of debt securities:
- Bonds, which are debt instruments in which the issuing company or governmental body promises to pay the holders a specified amount of interest for a specified length of time and to repay the principal amount of the loan at maturity. A bond is typically a long-term debt instrument. Its holder is a creditor of the company and has no ownership rights as a stockholder does.
- Debentures, which are unsecured debt instruments backed solely by the general credit of the borrower, usually a government or large company. A debenture is similar to a bond.
- Notes, which are debt securities that usually have a short-term maturity of between one and 10 years.
Although each of these debt securities have slightly different definitions, the terms "bond," "note" and "debenture" are often used interchangeably to refer to the same types of debt securities.
For more information on debt securities, see Practice Note, Debt Securities: Overview.