Posted in Finance, Accounting and Economics Terms, Total Reads: 311
Definition: Utility Revenue Bond
Utility revenue bond is a bond that is issued by municipal corporations or other government bodies to finance various projects related to developments of several kinds of utilities such as power plants or drainage systems or for development of roads or bridges or water, gas, or electricity distribution or disposal of solid waste or storm water that need to be developed for public use.
These kinds of bonds are repaid by the revenue that is generated by operating the various kinds of utility projects that have been financed through these bonds. However, these kinds of bonds are interest bearing and also the credit rating of these kinds of bonds is also very good or high, since the guarantor for these bonds is government. Hence, the credit risk associated with these kinds of bonds becomes very less. These kinds of bonds are also secured by the reserve fund.
This fund is generated or maintained by the issuer in order to repay the debt, if the utility for which the debt was taken or bond was issued does not perform at the required level of performance or the cash flows generated through the operation of that particular utility is not enough to repay the debt of the investors. In such case funds from reserve fund are used by the issuers to repay the debt.