Series 50: Revenue Pledge Covenant And Flow Of Funds

Revenue Pledge Covenant and Flow of Funds

The flow of funds requirement is a statement showing the process by which pledged revenue is distributed into the various accounts established by the bond indenture. Revenue is usually deposited immediately upon receipt into a revenue fund or general fund, from which it is disbursed to the other funds. Depending on the type of commitment made in a revenue pledge covenant, funds are distributed first to fund either its debt service fund or its operations and maintenance expenses.

The flow of funds is distributed according to either a net revenue or gross revenue structure.

• • A gross revenue pledge allocates funds to debt service before any other expenses are paid.
• • A net revenue pledge requires that funds flow first into the operations and maintenance (O&M) fund before any funds are allocated to debt service.

The net revenue pledge is more common, as covering operations and maintenance helps to ensure that the facility continues to be able to create revenue.

Mne