Flow of funds
·
Where funds facility receives will be spent
Revenue fund
·
First, issuer must deposit received revenues
here
Net revenues pledge
·
Revenue fund $ must pay project expenses
·
Remaining $ to pay debt service on bond
Gross revenues pledge
·
Revenue fund $ to pay principal and interest on
bond
·
Remaining $ to pay maintenance costs
Operation and maintenance fund
·
$ to pay for operation and maintenance on
facility
Sinking fund
·
For term bonds
·
$ issuer puts away, will redeem bonds with it
later
·
Makes sure issuer has enough $ at bond’s
maturity
·
Escrow account, part of issuer’s income from
taxes or revenues is placed here, can only be used to pay principal back
·
$ must be deposited yearly, $ invested in government bonds for
security
·
$ in sinking fund: municipality will buy its own
bonds at a discount or pay off bonds when called
·
Sinking fund call, if part of bond issue is
called and paid by sinking fund
·
Term bonds have a sinking fund-why? The whole
bond comes due at once and provides $ for issuer then
·
Serial bonds don’t have a sinking fund-why? Part
of the issue comes due each year. Sinking fund could be useful with a serial
bond to provide for future calls and for the part of the issue that comes due
yearly
Debt service fund
·
Contains additional $ to be spent on bond’s
principal and interest payment (debt service) if revenues aren’t enough to make
payments
·
Debt service reserve fund: reserve to pay debt
service in future years
·
Reserve maintenance fund: reserve to pay for
unexpected maintenance costs
·
Renewal and replacement fund: reserve to replace
worn out equipment and make repairs
·
Surplus fund: can be used for anything legal-the
redemption of bonds or to decrease user fee payments
Which of the following provides for the debt service and
maintenance of a municipal revenue bond?
·
Rate covenant
·
keeps rates high enough to pay operation and
maintenance costs
·
promises such as keeping records, keeping
insurance, maintaining facility
