rate covenant

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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
Legal covenants are adequate, with an additional bonds test of 1.5x, and a rate covenant of 1.25x.
In the first two of the three-notch downgrade, Moody's emphasized the failure of the utilities enterprise to set rates sufficient to meet bond covenants, noting weak rate setting resulted in five rate covenant violations in the last five fiscal years.
Coverage levels are above the rate covenant requirements, though remain consistently lower than in pre-recession periods.
The rate hike was necessary for the city to maintain its rate covenant of 1.15x annual debt service without commensurate expenditure cuts, S&P credit analyst, Misty Newland, explained.
An important credit factor addressed in the indenture is the rate covenant. The rate covenant mandates that system administrators assess rates sufficient to generate revenues at a designated threshold level.
The most important of these are the rate covenant, the additional bonds test, and the debt service reserve requirement.
While the MTI rate covenant requires retention of a consultant for the first missed historical debt service coverage ratio below 1.20x, it also considers that failure to maintain an historical debt service coverage ratio of at least 1.0x for two consecutive years constitutes an event of default.
All outstanding bonds will be secured on parity under a master trust indenture, which carries a 1.2x rate covenant and 120 DCOH liquidity covenant.
There is an annual rate covenant of sufficiency (1.0x) and an additional bonds test of 1.2x pro-forma maximum annual debt service, based on an average of the last two fiscal years' operating results.
The security package is considered strong, with a 12-month cash funded debt service reserve fund (DSRF), and a 1.5x rate covenant and additional bonds test (ABT).