Mortgage debentures are a form of bond with low default risk. They offer a safe alternative to corporate bonds. Mortgage debentures are backed by the fixed assets of the issuer. In addition to covering fixed assets, mortgage debentures also cover intangible assets and construction-related intangibles.
Mortgage debentures are issued by companies as a form of secured lending. These loans are secured by the company’s fixed assets and can only be repaid when the company fails to repay the loan. These loans are primarily used by small and mid-sized businesses to finance the purchase of fixed assets.
Debentures can be fixed or floating. Fixed debentures are backed by the value of the company’s assets, while floating debentures do not fasten on an asset until they crystallize. Bearer debentures, on the other hand, are payable to a bearer, and transferable by mere delivery. These instruments are negotiable and are accompanied by interest coupons.
The interest rate associated with mortgage debentures is typically related to the bank rate. Unsecured debentures are usually issued at a substantial discount. The issue price is below the nominal value of the debt. The difference between the face value and the issue price is the interest associated with the debentures.
Mortgage debentures can be registered or bearer. They are issued to a registered holder. Usually, they are transferable by simple delivery without the need for a middleman. The interest on bearer debentures is paid to the bearer’s name in the company’s register. However, registered debentures cannot be transferred without the approval of the board.
Debentures can be convertible or non-convertible. The conversion price is based on a number of factors, including the current interest rate, book value at the time of the issue, and anticipated growth in the value of equity shares. Investing in mortgage debentures is safe, offers potential capital appreciation, and offers liquidity.
Debentures are issued by a company as a loan. Debentures are usually secured by a mortgage or a charge on the company’s assets. Debentures can also be issued without a charge. An unsecured debenture, on the other hand, is an acknowledgment of a debt that is owed to the company. It does not give the holder any rights beyond those of an unsecured creditor.
