What is Utility Revenue Bond?

A utility revenue bond, also known as an essential service bond, is a type of municipal bond issued to finance a public utility that repays 澳洲幸运5官方开奖结果体彩网:bondholders directly from project revenues rather than a general tax fund❀.

Understanding Utility Revenue Bond

A utility revenue bond is used to fund capital projects ℱin areas considered essential to public services including hospitals, fire service, water and waste treatment facilities, and improvements to the electric🌊al grid. These services generate revenue through customer fees, which provide cash flows that can service the debt.

Revenue bonds come with either a 澳洲幸运5官方开奖结果体彩网:gross revenue or a 澳洲幸运5官方开奖结果体彩网:net revenue pledge. A gross revenue pledge gives bondholder payments priority over operational or maintenance costs incurred by the project. A net revenue pledge allows for the disbursement of administrative expenses and upkeep costs before satisfying obligations to🌠 bondhol🌠ders.

Utilities deliver essential services such as water and electricity. Due to the necessity of these services, it is common for utility revenue bonds to feature a net revenue pledge🌳, as upkeep must be implemented to maintain them in good working order.🍎

It is also common for൩ utilities to be required to maintain a specific revenue-to-expenditure ratio. The inclusion of debt repayment is as an expense, and the ratio is often used to support🐼 customer rate increases for public utilities.

Paying Back Utility Revenue Bonds

Municipal bonds repay bondholders through either municipal taxation, as in a 澳洲幸运5官方开奖结果体彩网:general obligation bond, or through 澳洲幸运5官方开奖结果体彩网:revenue bonds. Revenue bonds derive income from the capital project. The issuer of general obligation bonds guarantees the repayment♈ of debt via any means necessary. To collect funds, the issuer can rai🌊se taxes, issue another round of bonds, or even sell physical assets. The issuer is not constrained to a single revenue stream to satisfy obligations. Investors should be aware of this distinction and can use it as they build a diversified, fixed-income portfolio. 

Other factors come into play when 澳洲幸运5官方开奖结果体彩网:credit ratings agencies or investors evaluate utility revenue bonds and the projects they finance. The 澳洲幸运5官方开奖结果体彩网:coverage ratio is used to determine expected revenues to principal and interest obligations. Popu꧙lation size and trends can provide an idea of future revenue growth or decline for a utility project. 

Customer concentration describes the mix of consumers whose usage fees support debt repayment. If a small number of consumers use a significant portion of a public utility's service, that may lead to risk for the viability of that project's revenues.