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.


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.

Hudson Yards Rail Yards

Start with the Bond Basics