Question

Listed companies prefer the debenture route for raising long-term capital than borrowing from banks as ______________________.

• A. It gives them greater leverage in loan repayment and conversion option into shares, if need be.
• B. Debenture holders are considered more loyal and supportive than the banks.
• C. They need to pay less interest on the debentures in comparison to a bank loan
• D. None of the above

Answer 1

The correct option is A It gives them greater leverage in loan repayment and conversion option into shares, if need be.

Preference to the debenture route of borrowing over banks has many advantages: firm is able to break the loan amount into small volumes, which dilutes the burden of liability; debenture holders are sympathetic to their companies more than a bank; if need be the company can convert the debentures into stares, too, etc.