Industrial Revenue Bonds: A Source of Long-Term Financing

by Surendra Singhvi, John Slamka



This article focuses on industrial revenue bonds as a source of long-term financing. As Money and credit become costlier and scarcer, more and more firms are tinning to industrial revenue bond financing as a means of acquiring the low-cost capital needed for plant construction or expansion. Industrial revenue bonds are securities issued by local governments to raise funds for acquiring or improving physical plants and facilities which are rented to private firms on long-term leases. Industrial revenue bonds have become increasingly popular in recent years, but the reasons for this are not readily apparent. Characteristics of industrial revenue bonds. Industrial revenue bonds are paid for under short-lease terms which require rental payments sufficient to cover debt-servicing charges and other costs related to the bond issue. The bonds can be a general obligation of the local governmental unit. Like all general obligations, they may rest on the taxing powers and economic strength of the locality, or they can be secured by the revenue generated from, the lease and by a mortgage on the property. The recent spectacular rise in the amount of industrial bond financing indicates that not only are more firms using these bonds, but also larger firms have begun to use them for much larger investments.

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