Business Definition for: revenue bond
revenue bond
revenue bond
municipal bond
or state bond issue paying principal and interest from the revenues of an income generating project, such as a toll bridge, highway, hospital, or other public facility that is built with the proceeds of the financing. Income generated by the facility goes first toward meeting debt service on the bonds, i.e., paying interest to bondholders and retiring the bonds at maturity. Unlike general obligation bonds, revenue bonds are not backed by the
full faith and credit
, or taxing authority, of the bond issuer. As a rule, revenue bonds are considered tax exempt to bondholders in the issuing state. Commercial banks are authorized to underwrite, and trade in revenue bonds through separate securities subsidiaries, as authorized by the Federal Reserve Board.
See also
securities subsidiary
revenue bond
municipal bond
issue paid off with revenues from the project built with the proceeds, such as a toll bridge, highway, educational facility, hospital, sewer system, stadium, or other structure that serves a public need and generates revenue. Unlike
General Obligation Bond
, revenue bonds are usually not backed by the taxing power of the municipality.
Related Terms:
bond issued to finance public works such as bridges or tunnels or sewer systems and supported directly by the revenues of the project. For instance, if a municipal revenue bond is issued to build a bridge, the tolls collected from motorists using the bridge are committed for paying off the bond. Unless otherwise specified in the indenture, holders of these bonds have no claims on the issuer's other resources.
company controlled by a bank holding company or Financial Holding Company that underwrites commercial paper, and government and corporate securities for distribution to investors. These companies, also known as Section 20 companies (named after a section of the glass-steagall act relating to securities underwriting), came into existence in 1987 when the Federal Reserve Board permitted bank-owned securities firms to underwrite and deal in limited amounts of commercial paper and municipal revenue bonds. In 1990, the Fed authorized the firms to deal in corporate stocks and bonds. Bank underwriting of corporate securities was at first limited to 5% of bank revenues, a ceiling that was eventually raised to 25% of total revenues in 1996. The gramm-leach-bliley act of 1999 removed these volume limits on corporate underwriting, as long as banking companies involved satisfied bank regulatory capital requirements. The modernization act also imposed limits on bank holding company investments in a securities subsidiary to 45% of consolidated assets or $50 billion, whichever is less. In 1999, there were 51 bankowned securities firms operating in the United States.
Referring Terms:
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