Revenue Bonds
Chapters in this video
- 0:00 What backs a revenue bond: project income, not taxes
- 1:58 Feasibility study: proving the project can pay its own bills
- 2:41 Revenue sources, essentiality, and subordinate lien bonds
- 3:20 Trust indenture protective covenants and the rate covenant trap
- 5:04 Net revenue pledge vs gross revenue pledge: who gets paid first
- 6:09 Debt service coverage ratio (DSCR) and the 1.25x minimum floor
- 7:46 Essential service utility bonds: why lower coverage is acceptable
- 8:18 Credit enhancements, bond insurance, and EMMA for continuing disclosure
- 9:01 Rapid-fire exam recap
What this video covers
- Why revenue bonds do not require voter approval and how this distinguishes them from general obligation (GO) bonds on the exam
- What a feasibility study proves and why it is required for revenue bonds but not GO bonds
- How the trust indenture establishes protective covenants including the rate covenant, additional bonds test (ABT), non-competition covenant, and catastrophe clause
- Why the rate covenant is the single most important protective covenant for maintaining debt service coverage
- The difference between a net revenue pledge (operations and maintenance paid first, assumed by default) and a gross revenue pledge (bondholders paid first, must be explicitly stated)
- How to calculate and interpret the debt service coverage ratio (DSCR), including why 1.25x represents a 25% safety cushion and why essential service utilities need lower analytical coverage than discretionary projects
- How credit enhancements work: bond insurance substituting the insurer's rating, letters of credit (LOC) for variable rate demand obligations (VRDOs), and state aid intercepts
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