General Analytical Framework for Assessing the Credit Worthiness of Revenue Bonds

This chapter provides the general analytical framework for determining the credit worthiness of revenue bonds by looking at these six areas. Revenue bonds are issued for project or enterprise financings that are secured by the revenues generated by the completed projects themselves, or for general public purpose financings in which the issuers pledge to the bondholders tax and revenue resources that were previously part of the general fund. The flow of funds of many revenue bonds is structured as net revenues. The legal documents should indicate whether there are other relevant covenants for the bondholder's protection. These usually include pledges by the issuer to insure the project to have the financial accounts annually audited by an outside certified public accountant and to provide a timely report to investors as well as to employ independent engineers to annually review the capital plant and make mandatory recommendations to keep the facility operating for the life of the bonds.