An industrial revenue bond (IRB), also formerly known as an Industrial Development Bond (IDB), is a unique type of
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. Unlike general ...
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. In some cases, this arrangement may provide a federal
tax exempt
Tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, redu ...
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
A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting.
...
. 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 States
The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territorie ...
IRBs are governed by IRS statute and include the following provisions:
* The maximum amount of bonds that may be issued or outstanding is US$10 million.
* 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
See also
*
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. Unlike general ...
*
Municipal bond
A municipal bond, commonly known as a muni, is a Bond (finance), bond issued by state or local governments, or entities they create such as authorities and special districts. In the United States, interest income received by holders of municipal ...
References
{{DEFAULTSORT:Industrial Revenue Bond
Bonds (finance)