Misconceptions About Industrial Development Revenue Bonds: Understanding the True Interest Payment Source.

Which of the following statements is NOT TRUE of industrial development revenue bonds?-They are issued by local municipal governments-They may be used to finance the construction of commercial property that will be used by private corporations-Their credit rating is determined by an analysis of the municipal government issuing the bonds-Interest is paid from rents received from private corporations

Their credit rating is determined by an analysis of the municipal government issuing the bonds.Industrial development revenue bonds are issued by local municipal governments to build factories or other commercial properties. The plant or property is leased by the municipality to a corporation. The interest on the bonds is paid from the lease rental payments made by the corporation. The credit rating of the bond is based on the credit rating of the corporation and not on an analysis of the credit rating of the municipal government issuing the bonds.

The statement “Interest is paid from rents received from private corporations” is NOT TRUE of industrial development revenue bonds.

Industrial development revenue bonds are primarily issued by local municipal governments to finance the construction of commercial properties that are used by private corporations. These bonds have a lower credit rating compared to general obligation bonds, and their credit rating is usually based on the creditworthiness of the private corporation that the bonds are issued for.

The interest on industrial revenue bonds is paid by the private corporation that is benefiting from the bond issue, and not from the rents received from that corporation. The interest paid on these bonds is exempt from federal taxes, and sometimes from state and local taxes as well, which makes them attractive to investors.

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