Revenue Bonds

Revenue Bond is a bond which pays back investors from the income generated by the project that the bond is funding like a toll bridge or road. Revenue bonds are a kind of municipal bonds and are used to help fund income-generating projects like building highways, toll bridges, stadiums etc. These bonds are generally issued by a government agency and through its issuance government entities look to reduce their expenditure on various infrastructure projects.

A revenue bond is backed by a steady revenue stream, however this kind of bond pays a higher rate of interest due to the high amount of risk involved in it.

How are Revenue Bonds different?

These bonds are not like other municipal bonds which are known as general obligation(GO) bonds. In a general obligation bond, the repayment made to the bondholders is made by the municipality via any source of revenue generation, while, for Revenue bond holders it is different as they are solely dependent on the project’s income for which the bond was issued. This makes the risk of revenue bonds higher in comparison to GO bonds. However, the high risk means that revenue bonds offer a higher rate of interest. 

Types of Revenue Bonds

There are a wide array of revenue bonds available for investors typically issued by State governments and local governments.

Airport Revenue Bonds: As the name suggests, this kind of bonds are issued by a municipality or airport authority.  Revenue generated via the airport itself is used to propel the bond forward.

Toll Revenue Bonds:  This kind of municipal bond is largely issued to direct revenue that gets collected from the toll towards the construction of a public project. The toll revenue can come from a bridge, expressway or tunnel. The revenue that is generated is also used to pay the principal and interest payments to the bondholders