Investor protection outline
Indenture
·
Document that outlines all requirements
municipal issuer must follow
·
Includes: maturity dates, interest rates, name
of trustee and trustee bank, protective covenants
·
Does not include: re-offering yield: rate bond
is selling in market, reoffering cannot be guaranteed
Protective covenants
·
Agreements made between issuer and purchaser of
revenue bond
·
Set forth in indenture
·
Most important: rate covenant, insurance
covenant, maintenance covenant, revenues pledge covenants
·
Rate covenant: Makes sure issuer keeps rates
high enough to meet operation + maintenance expenses + debt service + other
incurred costs
·
Insurance covenant-issuer promises to carry
enough insurance on facility to protect against damage/destruction
·
Maintenance covenant: issuer promises to
maintain facility, keep in good repair, will preserve revenues
·
Revenues pledge covenant: issuer promises to use
revenues toward debt service or maintenance, depending on type of pledge
·
Two revenue pledges: gross revenues pledge and
net revenues pledge
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