Analysis of Revenue Bonds
Chapters in this video
- 0:00 Revenue sources, feasibility studies, and essentiality
- 1:59 Bond indenture covenants and the additional bonds test
- 3:39 Gross revenue pledge vs. net revenue pledge order of payment
- 4:50 Debt service coverage ratio: 1.25x utilities, 2.0x non-essential
- 5:55 Credit enhancements and bond insurance credit risk shift
- 7:21 Rapid-fire exam recap
What this video covers
- Why a feasibility study from an independent consulting engineer is required before issuance, and what makes essential service revenue (water, sewer, electric) more reliable than non-essential project revenue like toll bridges
- The six key indenture covenants: rate covenant, insurance covenant, maintenance covenant, additional bonds test, catastrophe covenant, and non-competition clause
- When the additional bonds test must be satisfied (before, not after, new parity bonds are issued) and why subordinate lien bonds are the only alternative if the test fails
- The critical order-of-payment distinction between a gross revenue pledge (bondholders paid first) and a net revenue pledge (operations and maintenance paid first), including the memory aid to lock this in
- How to calculate and interpret the debt service coverage ratio (DSCR), including why utility revenue bonds need only 1.25x coverage while non-essential projects need 2.0x
- Why bond insurance shifts credit risk to the insurer, not the issuer, and how to identify the rated party on an insured revenue bond
- Where to locate official statements (Electronic Municipal Market Access System, or EMMA), credit ratings, and market data for ongoing municipal disclosure
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