Revenue bonds are self supporting bonds issued by certain municipalities that are procuring funds for revenue generating projects. The projects could be oil drilling, new energy, or utilities. Any of those projects could be used for revenue bonds. Also, with revenue bonds, municipalities are able to raise funds without any debt limitations.

The idea is for the revenue generated by the bonds to pay investors. These bonds are unlike general obligation bonds in that they do not pay investors from the taxes that are generated. This is because revenue bonds do not seek to levy taxes in order to pay the interest and principal payments. The payments on revenue bonds are paid exclusively from money generated by the facility. This payment method follows with a flow of funds.

First paid are the maintenance expenses, where the net revenues then pay the debt service (the principal and interest payment to the number of investors).

Keep in mind there is a difference between gross revenue pledged and net revenue pledged bonds. The major difference between the two is that the gross revenue pledged bonds will not pay the expenses first. Yet the investor will pay the expenses out of its coupon.

 

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