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Preference shares
Preference shares (prefs) are legally shares, but they
are very different from ordinary shares. The
economic effect of prefs is more like that of bonds.
Like convertibles, they are regarded as hybrids of
debt and equity:
Debentures
In law, a debenture is a document that either creates a
debt or acknowledges it. In corporate finance, the term is
used for a medium- to long-term debt instrument used by
large companies to borrow money. In some countries the
term is used interchangeably with bond, loan stock or
note. A debenture is thus like a certificate of loan or a
loan bond evidencing the fact that the company is liable to
pay a specified amount with interest and although the
money raised by the debentures becomes a part of the
company's capital structure, it does not become share
capital.
Bonds
In finance, a bond is a debt security, in which the
authorized issuer owes the holders a debt and, depending
on the terms of the bond, is obliged to pay interest (the
coupon) to use and/or to repay the principal at a later date,
termed maturity. A bond is a formal contract to repay
borrowed money with interest at fixed intervals.[1]
Thus a bond is like a loan: the holder of the bond is the
lender (creditor), the issuer of the bond is the borrower
(debtor), and the coupon is the interest. Bonds provide the
borrower with external funds to finance long-term
investments, or, in the case of government bonds, to
finance current expenditure. Certificates of deposit (CDs)
or commercial paper are considered to be money market
instruments and not bonds.