A city transportation authority issues bonds to fund the construction of a new toll bridge. The bond indenture explicitly states that principal and interest payments are funded exclusively through bridge toll revenues, and the municipality is not legally obligated to use general tax revenues to satisfy debt service if toll receipts fall short. During an economic downturn, traffic volume declines sharply, causing a payment default. Which of the following statements accurately describes the classification of this debt security and the legal recourse available to bondholders?
- The security is a revenue bond, and bondholders have recourse solely to the pledged toll revenues specified in the trust indenture.Cevap
- BThe security is a general obligation bond, and bondholders can compel the municipal government to raise ad valorem property taxes to satisfy missing debt service payments.
- CThe security is a moral obligation bond, which legally mandates the state legislature to appropriate emergency funds to cover any revenue shortfall.
- DThe security is a double-barreled bond, allowing bondholders to foreclose directly on the bridge infrastructure to liquidate physical assets.
Cevap
The security is classified as a revenue bond, meaning debt service is paid strictly from specified project earnings (toll receipts), and bondholders cannot claim general municipal tax revenues.
Revenue bonds are issued to finance self-supporting facility projects (such as toll bridges, airports, or municipal water systems). They are backed solely by the revenues generated by the facility. If revenues prove insufficient, the issuing municipality is under no legal obligation to use general tax revenues to service the debt, limiting bondholder recourse strictly to the pledged revenues.
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Anahtar Kavram
Municipal Revenue Bond Structure and Credit Backing
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