Learn what a revenue bond is and why repayment depends primarily on project
A revenue bond is a bond whose repayment is supported mainly by the revenue generated by a specific project, facility, or enterprise rather than by the general taxing power of a government.
The structure matters because investors must study the economics of the underlying revenue source. If usage, pricing, or operating performance disappoints, debt service can come under pressure even if the issuer is a public entity.
A bond issued to finance a toll road may be repaid mainly from toll collections rather than from broad tax revenue.
An investor says, “Any bond issued by a public authority is automatically backed by general tax revenue.”
Answer: No. Revenue bonds rely primarily on the cash flow of the designated project or enterprise.