Net Revenue Pledge

Written By
Paul Tracy
Updated November 4, 2020

What is a Net Revenue Pledge?

A net revenue pledge requires issuers of municipal bonds to use their net revenues (revenue minus expenses) to pay the principal and interest of the municipal bonds before any other use.

How Does a Net Revenue Pledge Work?

Let's assume City XYZ issues $10 million of municipal bonds to build a toll road. The toll road is expected to generate $500,000 of revenue per year and cost $450,000 per year to operate. The net revenue is $50,000 per year. The principal and interest payments are $40,000 per year.

If the municipal bonds contain a net revenue pledge, City XYZ is required to use the $50,000 of net revenues per year to pay the $40,000 of principal and interest first. Only then can City XYZ use the remainder ($10,000) for other purposes.

Why Does a Net Revenue Pledge Matter?

Net revenue pledges are restrictive covenants intended to mitigate risk for bondholders. The idea is that the issuer has to use the revenues from the financed project to pay debt service costs first, thereby lowering the risk of default. As a result, bonds that have net revenue pledges often have higher debt ratings than those that do not.

Activate your free account to unlock our most valuable savings and money-making tips
  • 100% FREE
  • Exclusive money-making tips before we post them to the live site
  • Weekly insights and analysis from our financial experts
  • Free Report - 25 Ways to Save Hundreds on Your Monthly Expenses
  • Free Report - Eliminate Credit Card Debt with these 10 Simple Tricks
Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Net Revenue Pledge.
Be the first to ask a question

If you have a question about Net Revenue Pledge, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

If you have a question about Net Revenue Pledge, then please ask Paul.

Ask a question Read more from Paul
Paul Tracy - profile
Ask an Expert about Net Revenue Pledge

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms