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开奖号码历史查询:bondholders directly from project revenues rathe🎶r than a g𒅌eneral tax fund.

Understanding Utility Revenue Bond

A utility revenue bond is used to fund capital projects in areas considered essential to public services including hospitals, fire service, water and waste treatment facilities, 💧and improvements to the electrical 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开奖号码历史查询:gross revenue or a 澳洲幸运5开奖号码历史查询:net revenue pledge. A gross revenu🌃e pledge gives bondholder payments priority over operational or maintenance costs incurred by the project. A net reve🐼nue pledge allows for the disbursement of administrative expenses and upkeep costs before satisfying obligations to bondholders.

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 for utilities to be required to maintain a specific revenue-to-expenditure r𒁃atio. The inclusion of debt repayment is as an expense, and the ratio is often 𒀰used 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开奖号码历史查询:general obligation bond, or through 澳洲幸运5开奖号码历史查询: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 raise taxes, issue another round of bonds, or even sell physical assets. The issuer is not constrained to a single revenue stream to satisfy obli🧸gations. 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开奖号码历史查询:credit ratings agencies or investors evaluate utility revenue bonds and the projects they finance. The 澳洲幸运5开奖号码历史查询:coverage ratio is used to determine expected revenues to principal a𝄹nd interest obligations. Population size and trends can provide an idea of future r🎃evenue 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.