Revenue Bond
Quick Definition
A municipal bond repaid from the income generated by a specific project or facility, such as tolls, fees, or utility charges.
Key Takeaways
- Repaid from specific project revenue, not general taxes
- Common for toll roads, airports, utilities, hospitals
- Generally higher yields than GO bonds due to project-specific risk
- Represent roughly two-thirds of municipal bond issuance
What Is Revenue Bond?
A revenue bond is a type of municipal bond where debt service (interest and principal payments) is funded by revenue from a specific project, facility, or revenue source rather than general tax revenues. Common revenue bond issuers include toll roads, airports, water and sewer systems, hospitals, and public universities. Because revenue bonds depend on the financial performance of a specific asset, they generally carry slightly higher risk and yield than general obligation bonds from the same issuer. Revenue bonds are not backed by the issuer's taxing authority, so if the underlying project fails to generate sufficient income, bondholders may face losses. They are the most common type of municipal bond, representing roughly two-thirds of municipal issuance.
Revenue Bond Example
- 1The New Jersey Turnpike Authority issues revenue bonds backed by toll collections from the turnpike
- 2A hospital revenue bond might yield 4.2% tax-free while a GO bond from the same county yields 3.8%
Related Terms
Municipal Bond
A debt security issued by a state, city, or local government, typically offering interest income exempt from federal (and sometimes state) income tax.
Bond Rating
A credit quality grade assigned by rating agencies (S&P, Moody's, Fitch) that assesses the issuer's ability to repay principal and interest.
Bond Indenture
The legal contract between a bond issuer and bondholders that specifies the bond's terms, covenants, and the rights and obligations of each party.
Default Risk
The probability that a bond issuer will fail to make scheduled interest or principal payments, potentially resulting in partial or total loss for bondholders.
Bond
A fixed-income debt security where investors loan money to an issuer in exchange for regular interest payments and return of principal at maturity.
Treasury Bond (T-Bond)
A long-term U.S. government debt security with a maturity of 20 or 30 years, paying semiannual coupon interest.
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