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Describes backing of the principal and interest of a smaller municipal revenue bond by a larger municipal entity.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A municipal bond with the coupon and principal guaranteed both by the general revenue of the municipality issuing the bond and by the revenue of the project the bond finances. If the revenue from the project is less than expected and is not enough to make payments, the municipality will make them instead. A combination bond is intended to reduce the risk to the bondholder to the least possible amount; therefore, interest rates on them are fairly low. It is also called a double-barrel municipal bond.
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