What type of bond is typically backed solely by the issuing company's reputation?

A debenture bond is typically backed solely by the issuing company's reputation and creditworthiness rather than any specific collateral or asset. This means that if the company were to default, debenture holders would have a claim on the company’s assets only after secured creditors are satisfied. The reliance on the company's general credit strength means that debentures tend to carry higher risk compared to secured bonds, which are backed by specific assets, such as mortgage bonds.

The significance of this type of bond lies in its status as an unsecured debt instrument, indicating that while the interest payments might be attractive, they are contingent on the company's ability to meet its financial obligations. Investors need to assess the issuing company's stability and reputation when considering debentures, as these factors directly impact the bond's attractiveness and risk profile.

Conversely, mortgage bonds are secured by specific real estate assets, convertible bonds can be converted into equity, and zero-coupon bonds do not pay interest regularly but are issued at a discount and repay face value at maturity. Each of these choices reflects a different form of bond structure and security, distinguishing them from the debenture bond’s reliance solely on the issuer’s creditworthiness.