rate covenant

(redirected from Rate Covenants)

Rate covenant

A provision governing a municipal revenue project financed by a revenue bond issue, which establishes the rates to be charged users of the new facility.

Rate Covenant

A provision in an indenture for a revenue bond stating guidelines for the prices that the facility the bond intends to finance is allowed to charge its customers. For example, if a revenue bond finances an electric facility, a rate covenant may state that the electric company must charge enough to cover its ongoing expenses, but not so much that it is unfair to consumers.

rate covenant

A provision for a municipal revenue bond issue that sets requirements for charging revenue on the facility that is being financed by the bond issue. For example, a rate covenant might require that the rates from customers of a city sewage plant be sufficient to ensure adequate maintenance and repair for the facility. A rate covenant is included in a bond agreement to protect the bondholders' interests.