Industrial revenue bond
Encyclopedia
An industrial revenue bond (IRB) is a unique type of revenue bond
organized by a state or local government. The bond issue is sponsored by a government entity but the proceeds are directed to a private, for-profit business.
The bond issue is created and organized by a sponsoring government, with the proceeds used by the private business. The business is responsible for bond repayment. The sponsoring government holds title to the underlying collateral until the bonds are paid in full. This arrangement provides tax exempt status to the bonds, and many times a property tax exemption on the collateral. The sponsoring government is not responsible for bond repayment and the bonds do not affect the government’s credit rating
. IRBs are desired as the private business receives a lower interest rate (due to the bonds tax-exempt status), a property tax exemption, and a long-term, fixed rate financing package.
Bond proceeds may be used for a variety of purposes, including land acquisition, building construction, machinery and equipment, real estate development fees, and the cost of bond issuance.
IRBs are governed by IRS statute and include the following provisions:
Revenue bond
A revenue bond is a special type of municipal bond distinguished by its guarantee of repayment solely from revenues generated by a specified revenue-generating entity associated with the purpose of the bonds, rather than from a tax...
organized by a state or local government. The bond issue is sponsored by a government entity but the proceeds are directed to a private, for-profit business.
Bond Structure
An IRB differs from traditional government revenue bonds as the bonds are issued on behalf of a private sector business. IRBs are typically used to support a specific project, such as a new manufacturing facility.The bond issue is created and organized by a sponsoring government, with the proceeds used by the private business. The business is responsible for bond repayment. The sponsoring government holds title to the underlying collateral until the bonds are paid in full. This arrangement provides tax exempt status to the bonds, and many times a property tax exemption on the collateral. The sponsoring government is not responsible for bond repayment and the bonds do not affect the government’s credit rating
Credit rating
A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers likelihood of default. Credit ratings are...
. IRBs are desired as the private business receives a lower interest rate (due to the bonds tax-exempt status), a property tax exemption, and a long-term, fixed rate financing package.
Bond proceeds may be used for a variety of purposes, including land acquisition, building construction, machinery and equipment, real estate development fees, and the cost of bond issuance.
IRS Statute
In the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
IRBs are governed by IRS statute and include the following provisions:
- Maximum US$10 million per project
- Total capital expenditures at the project site may not exceed US$20 million total
- Total IRBs outstanding at the company in the U.S. may not exceed US$40 million total