Sun Company, an oil-refining concern, purchased all of its outstanding 8 1/2 percent (stated rate) debentures due November 15, 2000, as part of a restructuring plan. The balance sheet value of each outstanding debenture at the time of the repurchase was $875, and the company paid $957.50 for each $1,000 face value bond. REQUIRED:

a. What is a debenture? Would such bonds tend to be issued at higher or lower prices than secured bonds? Why?

b. Briefly discuss why a company would repurchase its outstanding debt.