Gross Revenue Pledge

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Gross Revenue Pledge

A provision in the indentures of some municipal bonds stating that the first priority of the revenue from the bond shall service debt or be set aside to pay the coupons to bondholders. The project a bond intends to finance is relegated to second place, and may be funded from other sources in addition to the bond. This places a difficulty on the issuer, but reduces the risk of default to bondholders. It also allows the bond to be issued at a lower interest rate, which is good for the issuer.
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For small to medium credits, however, first mortgages and gross revenue pledges will begin to be lumped in with "hot air" in terms of quality of collateral; I can imagine liens on body parts becoming more important at that time.