Debentures: are they robust security?

A debenture is the written agreement between a lender and a borrower setting out the fixed and floating charges and detailing the terms and conditions under which the lending is provided

It is filed at Companies House and prevents other parties getting security against the assets in question, unless a Deed of Priority is created. (A Deed of Priority is created where more than one lender takes security over a company).

So AIUI a debenture in itself offers no actual asset value but effetively provides the rules by which and governance over a company that borrows against assets (fixed or variable). This may for instance include powers such as being able to enforce external auditors in the event of loan covenant breaches that could affect the loan serviceability or asset value. Any strength or potential value of a covenant lies in the wording and how this potentially benefits the lender through the life of the loan. So a weak or badly written debenture is worth a lot less than one that gives specific enforceable powers over a business. Edit: This power may be important where charges over floating assets such as stock, WIP, debtors etc are concerned. E.g where company profits fall and stock is being sold off to fund cash-flow reducing the vales of the charged assets.

Hope this helps

Just to point out that Assetz has only ever done a handful of debenture led loans without other property type security in place as primary security. It has no plans for any further ones. We do however often take debentures as a belt and braces security approach on top of tangible security. I hope this helps.

If I recall correctly, you do seem to have some loans where the property security is less than the LTV implies, with debentures accounting for the remainder. How do you work out LTV on a loan that partially relies on a debenture?

Edit: A brief look at the loan book and I can see #580 is an example. Loan amount is £1.93m and property security is £2.25m, implying a property LTV of 86%. However there is also a debenture, and the LTV is given as 71.46%.  

Edit2: I have maybe got some things confused. That is the LTV of the full facility against the gross development value. The debenture doesn't affect the LTV at all.