A revenue bond is a US municipal bond that is issued to finance a specific project that is revenue generating, for example, a sewerage plant, a road, a tunnel. The revenues collected from the public for the use of the asset are used to pay the interest and principal. These bonds are more risky because the revenue may not be sufficient to cover the interest and principal and therefore they carry a relatively high rate. Investors (or the rating agencies on their behalf) would take a careful look at the ratio of expected revenue to interest commitment.
The most common issuers of revenue bonds are:
- Transportation systems
- Power systems
- Sewer systems
- Water systems