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BASIC DEFINITIONS

By Dr. David Edward Marcinko MBA MEd

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A Financial Innovation

Double‑barrelled bonds represent a distinctive form of municipal financing that blends two layers of security to reassure investors and reduce borrowing costs for issuers. At their core, these instruments combine the pledge of a specific revenue stream with the backing of a broader governmental taxing authority. This dual protection creates a hybrid between revenue bonds and general obligation bonds, offering both targeted repayment sources and the safety net of full faith and credit.

Structure and Mechanics

A traditional revenue bond is repaid solely from the income generated by a project, such as tolls from a highway or fees from a water utility. While this structure ties repayment directly to the project’s success, it can expose investors to risk if revenues fall short. General obligation bonds, by contrast, are backed by the taxing power of the municipality, meaning repayment is supported by property taxes or other general revenues. Double‑barrelled bonds merge these two approaches. They are issued with the expectation that project revenues will cover debt service, but if those revenues prove insufficient, the municipality’s general funds are legally obligated to step in.

This dual commitment is what gives the bonds their “double‑barrelled” name. Investors gain confidence knowing that repayment does not depend solely on the performance of a single project. Municipalities benefit because this confidence often translates into lower interest rates compared to pure revenue bonds.

Advantages for Issuers and Investors

For issuers, double‑barrelled bonds provide flexibility. They allow municipalities to finance projects that may not generate consistent or predictable revenue streams, while still accessing capital markets at favorable terms. The presence of a general obligation pledge reduces perceived risk, broadening the pool of potential investors. This can be especially useful for projects that serve essential public purposes but lack strong revenue‑generating capacity, such as schools or public safety facilities.

For investors, the appeal lies in the layered security. The primary revenue source offers a clear repayment path, while the general obligation pledge acts as a safety net. This combination reduces default risk and enhances credit quality. In practice, double‑barrelled bonds often receive higher ratings than comparable revenue bonds, making them attractive to conservative investors seeking stability.

Potential Drawbacks

Despite their advantages, double‑barrelled bonds are not without challenges. From the issuer’s perspective, pledging general funds creates a long‑term obligation that can strain budgets if project revenues consistently underperform. Taxpayers may ultimately bear the burden of repayment, raising questions about fairness when the financed project benefits only a subset of the community. Additionally, the complexity of the structure can make disclosure and transparency more demanding, requiring careful communication with investors and rating agencies.

For investors, while the dual pledge reduces risk, it does not eliminate it. Municipal financial health can fluctuate, and reliance on general obligation backing assumes that the municipality maintains sufficient taxing capacity and fiscal discipline. In rare cases of severe financial distress, even double‑barrelled bonds may face repayment challenges.

Conclusion

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EDUCATION: Books

SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit an RFP for speaking engagements: CONTACT: Ann Miller RN MHA at MarcinkoAdvisors@outlook.com -OR- http://www.MarcinkoAssociates.com

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