Revenue Bonds
Chapters in this video
- 0:00 Why revenue bonds are not backed by taxes
- 1:51 No voter approval, but a feasibility study is required
- 2:33 Trust indenture: rate covenant and additional bonds test
- 3:45 Flow of funds: gross pledge vs net pledge
- 5:14 DSCR 1.25x and the 25% cushion trap
- 6:16 EMMA, bond insurance, and the insurer's rating
- 7:26 Rapid-fire exam recap
What this video covers
- Why revenue bonds do NOT require voter approval, and why a feasibility study from an independent consultant is required before issuance
- What the trust indenture is, and the role of the rate covenant and additional bonds test (ABT) in protecting existing bondholders
- The difference between a gross revenue pledge (bondholders paid first) and a net revenue pledge (operations and maintenance, or O&M, paid first), and which one to assume when the exam stays silent
- How the debt service coverage ratio (DSCR) is calculated as net revenue divided by annual debt service, and why 1.25x means a 25% cushion above debt service, not 25% going to debt
- Where to look for ongoing disclosures: the official statement for new issues and Electronic Municipal Market Access (EMMA) for continuing disclosures
- How credit enhancements work, including bond insurance versus a letter of credit (LOC), and why an insured bond trades at the insurer's rating rather than the issuer's
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