A bond backed by the full faith and credit and taxing power of the issuer.
Types of Obligations
Municipal Bonds are issued by, or on behalf of, a state or a Political Subdivision of a state. The Issuer can be nearly any governmental entity, such as a state, county, city or an authority created by any of these governmental entities pursuant to applicable law. A Bond is simply the evidence of debt, in the same way that a promissory note is evidence of the obligation to repay a loan. It should be noted that references in this Basics Handbook to the term Bonds generally are not intended to exclude other types of municipal Securities (such as notes, certificates, etc.) but to reflect the reality that Bonds account for a majority of the Securities issued in the municipal market.
There are two primary types of municipal Bonds: (i) Governmental Bonds or Governmental Purpose Bonds, which are issued to provide funding for governmental projects; and (ii) Conduit Bonds, which are issued by the Issuer in order to loan the Bond proceeds to a third party or to fund projects leased to a third party authorized by law to use municipal Bond proceeds for qualified projects.
Many different types of Securities are issued in the public finance market. One useful way of categorizing municipal Securities is according to the source of funds used to repay them. These categories do not, however, cover all varieties of municipal Securities and do not provide any insight as to other important aspects of the Securities, such as whether the Interest Rate is fixed or variable, whether the Securities are subject to Optional Redemption, whether the Securities are taxable or tax-exempt, and whether the Securities are subject to the Alternative Minimum Tax, among other important terms and provisions.
Explore Select Types of Obligations
A bond which is to be repaid from a specific source of revenues, typically those produced by the facility or system for which the bond is issued.
Bond anticipation notes (“BANs”) may be used during a construction period or during high Interest Rate periods to delay incurring long-term, high Interest debt for as long as possible. The BANs may be either revenue or general obligation debt or payable solely from the proceeds of the long-term Bonds, when, and if, issued, and may be subject to the same Debt Limits and other restrictions to which the long-term Bonds are subject. Other interim financing mechanisms include grant, revenue and tax anticipation notes.
Bonds are special obligations secured by incremental increases in tax revenues paid by users of developed property or by general increases in taxable values within a designated tax increment area.
Financing that allows an investor to purchase a participation interest in a stream of payments generated by a lease, installment sale agreement or other governmental obligation.