DEFINITION of 'Gross Revenue Pledge'

A stipulation in a municipal bond indenture that requires the issuer (the municipality selling the bonds to fund a given development project) first to use revenues to pay down the issue's debt-servicing costs, delegating operating costs as second priority and likely funding them from other revenue sources. These bonds are most often tax free at the federal level.

BREAKING DOWN 'Gross Revenue Pledge'

Like most restrictive provisions in a bond indenture, a gross revenue pledge makes the debt issue safer for bondholders. The bondholders do not have to worry about the municipality potentially misusing revenues that should have been used to pay debt-servicing costs. Generally, the added safety created by the gross revenue is a cause for the bond issue to be offered at a lower interest rate.

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