An evidence of indebtedness issued by a corporation having precedence over its preferred and common stocks. It is commonly nothing more than a note, very likely in coupon form, and not secured by mortgage.
A so-called " debenture bond " does sometimes carry a lien of some sort upon the property of the company, but the writer is of the opinion that " debenture " is not the proper title for a bond so secured, but " mortgage debenture " should be used. Certainly in this country in the earlier days of banking a "debenture bond " was one unsecured by mortgage; not so in England, however.
Provision is often made that no mortgage indebtedness shall be created during the life of a " debenture " issue which shall not equally secure the latter. This is a very desirable feature and enhances its value.
Technically, when a railway or other corporation deposits stocks and mortgage bonds in a trust company and issues another bond against them, a "debenture mortgage " is the result, but by custom such bonds are often called " collateral trust."
There are issues bearing the name of " debenture mortgage bonds " which are actually secured by junior liens directly upon the property, as in the case of the Wabash Railroad Company, which had such an issue, divided into two classes: Series A and B, commonly called " debenture A " and " debenture B " bonds; the former having preference for interest only over series B. Interest on either issue is not payable unless earned, and is non-cumulative.
The desirability of a "debenture bond" as an investment depends largely upon the financial status of the corporation by which it is issued, and upon the amount of indebtedness having a prior claim. No foreclosure can be accomplished in case of default; the holder is simply a noteholder and must take what he can get after all prior claims are satisfied.