The Bond Basics

The Bond Basics

ANATOMY OF A PUBLIC FINANCE TRANSACTION
INTRODUCTION TO A PUBLIC FINANCE TRANSACTION
The following information is more fully described throughout this Basics Handbook and 
is set forth here to provide an overview of a public finance transaction, the parties thereto and 
specific tasks that Novices may undertake. Readers should note that attached to the end of this 
Basics Handbook is a Glossary of terms frequently used in this Basics Handbook and in public 
finance transactions.
A. Basics About Bonds
A Bond is simply the evidence of debt, in the same way that a promissory note is evidence 
of the obligation to repay a loan. Bonds are issued by a governmental entity, such as a state, county,
city or an authority in order to finance or refinance qualifying projects. An Issuer may issue Bonds
to finance its own project. In these cases, the Bonds are referred to as Governmental Bonds or 
Governmental Purpose Bonds. In other cases, the Issuer may issue the Bonds to loan the Bond
proceeds to a third party. In these cases, the Bonds are referred to as Conduit Bonds. Bonds are 
generally considered to be one of two types: (1) General Obligation Bonds, which are typically 
secured by the full faith and credit and general taxing power of the governmental entity issuing the 
Bonds; or (2) Revenue Bonds, which are secured by a specific source or sources of revenues that 
are not Ad Valorem Property Tax Revenues. Bonds are issued either as Tax-Exempt Bonds or 
Taxable Bonds.
B. A Basic Process of Issuing Bonds
Typically, Bonds are issued because a determination is made by an Issuer or a Borrower
that: (1) current revenue cash flow is not sufficient to fully finance a project on a pay-as-you-go 
basis; (2) current and future users of a project with a long life should contribute to the cost of the 
project (intergenerational equity); or (3) other reasons deemed prudent by the Issuer or Borrower
requiring the issuance of Bonds. Once the determination is made to issue the Bonds, the Issuer or 
Borrower will assemble a financing team that often involves the following: Bond Counsel, Issuer’s 
Counsel and/or Borrower’s Counsel, Disclosure Counsel, a Municipal Advisor, an Underwriter (or 
Lender) and Underwriter’s Counsel or Lender’s Counsel (if required by the financing plan). 
There are a significant number of preliminary tasks to complete prior to Closing the Bond
Issue. The following table is an example of certain important preliminary tasks and determinations 
that the financing team must undertake:
• The purpose and authority to undertake the project and the financing;
• State and tax law considerations regarding the use of the proceeds of the 
Bonds;
• The source of revenues to be pledged to the repayment of the Bonds;
• The Conduit Issuer for the Bonds, if applicable;

• Any remaining and unselected members of the financing team;
• The timetable for the financing, including dates for Pre-Closing and 
Closing;
• The Useful Life of the project to be financed with the proceeds of the Bonds
and the maturity schedule for the Bonds (this may be limited by the Useful Life of and the 
type of the project, as well as the revenues pledged to repayment of the Bonds); 
• Development of the structure of the financing (e.g., variable or fixed Interest 
Rate); 
• How the Bonds will be sold (e.g., Private Placement or Public Offering) and 
market conditions (e.g., Interest Rates and Redemption provisions); and
• Required covenants for the Bonds (e.g., terms for issuing Additional Bonds
secured by the same source of revenues, required coverage of Debt Service of such 
revenues, etcetera).
After the financing team completes the preliminary tasks, it will complete drafting the 
documents for the transaction, complete a Due Diligence process (analyzing and mitigating legal 
issues, credit risk, and factual disclosures set forth in the Offering Document), implement the 
financing plan (which includes the sale or placement of the Bonds with one or more investors), 
and execute the documentation. Finally, the Bonds are delivered to the investors, and the Issuer
receives the sale proceeds in exchange for the Bonds (and, if Conduit Bonds are issued, loans the 
proceeds to the Borrower).
C. Projects for Novices
The specific tasks that may be assigned to Novices depend on their firm’s role in a 
transaction (e.g., whether the firm is serving as Bond Counsel, Underwriter’s Counsel, Disclosure 
Counsel, Issuer’s Counsel, Borrower’s Counsel, Lender’s Counsel, or other special counsel). 
These tasks may be completed in their entirety by the Novice or for final review by a supervising 
attorney or more experienced and responsible professionals. Regardless of their level of 
experience or responsibility, Novices should keep the supervising professional informed as to the 
progress of these assignments. In addition, Novices should consult with the supervising 
professional about the various projects in which they are involved, particularly when fielding 
questions from parties outside the firm. Novices should always consult the supervising 
professional in the case of substantive questions on public finance transactions or firm policies.

The Bond Basics