bond-basics

Credit Enhancement

The use of the credit of an entity having greater financial strength than the Issuer or Borrower to improve the credit quality of a Bond Issue. Frequently encountered types of Credit Enhancement include Bond Insurance, Letter of Credit, other Guaranties, and government programs.


See Also

Bond Insurance (Policy)

A financial guaranty insurance policy provided by a bond insurer which pledges to make scheduled payments of interest and principal of a bond issue in the event the issuer is unable to make those payments on time.

Letter of Credit

A commitment, usually issued by a commercial bank, used to guarantee payment of the payment of the principal and interest on a bond issue.

Guaranty

A third party’s promise to pay the debt service on the bonds or perform some other obligation, which is the primary obligation of another party.

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Closing Index

An index of all documents to be delivered at a closing and included in the closing transcript.