Exercise

Fill in the blank.

1. 1. A covenant that allows the issuer to sell additional bonds is called a(n) _____ indenture.
2. 2. A covenant that does not allow the issuer to sell additional bonds is called a(n) _____ indenture.
3. 3. A covenant that requires the municipality to maintain the facility financed by the bond is called a(n) _____ covenant.
4. 4. A covenant that requires bondholders to carry enough insurance to protect against damage or destruction to the facility financed by the bond is called a(n) _____ covenant.
5. 5. A covenant that requires the issuer to keep audited annual financial reports is called a(n) _____ covenant.
6. 6. The order in which funds are allocated between debt and operations and maintenance for a revenue bond is called a(n) _____ requirement.
7. 7. When funds are allocated to debt service before other expenses, this is called a(n) _____ pledge.
8. 8. When funds are allocated to operations and maintenance before debt service, this is called a(n) _____ pledge.
9. 9. After funds have been disbursed to the debt service fund and the operations and maintenance fund, any remaining funds will usually be put into a(n) _____ fund that will be reserved for buying back callable bonds.
10. 10. The net operating income divided by the debt service payments is called the _____.

Answer true or false.

1. 11. True or false. A debt service coverage ratio of below one bodes well for a revenue bond.

Answers: 1. Open-end; 2. Closed-end; 3. Operations and maintenance; 4. Insurance; 5. Financial reports; 6. Flow of funds; 7. Gross revenue; 8. Net revenue; 9. Sinking; 10. Debt service coverage ratio; 11. False

Example Question 1

All of the following would suggest a high rating for a municipal GO bond except:

1. A. Low overlapping debt
2. B. A municipality with high property values that are growing
3. C. A municipality that is not hostile to tax increases
4. D.