DEFINITION of 'Bond Resolution'

Bond resolution is a document used with government bonds, especially general obligation bonds, to allow bonds to be issued and sold for a specific purpose and to define the rights and responsibilities of each party in a bond contract (the issuer and the bondholder). The bonds represent money loaned and entitle the holder to interest payments and the return of principal.

A bond resolution can also be called a bond indenture or a bond ordinance.

BREAKING DOWN 'Bond Resolution'

Bond resolution is typically applicable to bonds issued by municipalities. A bond resolution describes how much interest and principal will be paid to bondholders, when and how payments will be made, how bonds may be redeemed, and what happens in the event of default. It also describes how the bond funds may be used. Failure to meet the payment requirements may lead to serious consequences and penalties including liquidation of the issuer's assets. If the issuer intends to increase taxes on its residents in order to generate tax income to be used in the interest and principal payment of the general obligation bonds, the bond resolution may stipulate that only a certain percentage of the tax may be funded into debt. In some cases, such as with revenue bonds, a bond indenture is used instead of a bond resolution to define the legal terms of the bond issue and its financing.

A bond resolution indicates the call features of a bond issue. For instance, it outlines how a sinking fund should be used in retiring all or a portion of outstanding bonds. The fund requires an issuer to regularly fund an escrow account which will be used to pay off debt as it comes due. Furthermore, the resolution also includes guidelines on the issuance of additional bonds, payable from the revenue received from the project to be financed by the muni bond.

Bond resolution also refers to a ballot measure that allows voters to approve or deny the issuance and sale of new bonds for a stated purpose. It constitutes of the authorizing resolution and the award resolution. Issuance of the securities is usually approved in the authorizing resolution, and sale is usually authorized in a separate document known as the award resolution. This type of bond resolution describes the nature and location of the project to be financed and the project's maximum potential cost. For example, a bond resolution might authorize a municipality to issue $10 million in refunding bonds to refinance an outstanding water revenue bond and to finance the cost of improvements to facilities of the municipal region. In certain jurisdictions, the governing body will act by means of a bond ordinance rather than by resolution.

  1. Bond

    A bond is a fixed income investment in which an investor loans ...
  2. Authority Bond

    An authority bond is a security issued by a corporate or government ...
  3. Put Bond

    A put bond is a bond that allows the bondholder to force the ...
  4. Combination Bond

    Combination bonds are municipal bonds with financial backing ...
  5. Double Barreled

    A double barreled bond is a municipal bond in which the interest ...
  6. Serial Bond

    A serial bond is a bond issue in which a portion of the outstanding ...
Related Articles
  1. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  2. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  3. Investing

    Why Bond Prices Fall When Interest Rates Rise

    Never invest in something you don’t understand. Bonds are no exception.
  4. Investing

    Corporate Bonds for Retirement Accounts

    Corporate bonds are usually the preferred choice in retirement accounts. Here are some of the benefits of corporate bonds, and strategies for a portfolio.
  5. Investing

    Invest in Municipal Bonds During Rate Hikes

    Discover five reasons why investing in municipal bonds when the Federal Reserve hikes interest rates can be a great way to boost investment income.
  6. Investing

    How Interest Rates Impact Bond Values

    The relationship between interest rates and bond prices can seem complicated. Here's how it works.
  7. Investing

    The Basics Of Municipal Bonds

    Investing in municipal bonds may offer a tax-free income stream, but such bonds are not without risks. Check out types of bonds and the risk factors of muni-bond.
  8. Investing

    Six biggest bond risks

    Bonds can be a great tool to generate income, but investors need to be aware of the pitfalls and risks of holding corporate and/or government securities.
  9. Investing

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  10. Investing

    How Bonds Are Vital to a Successful Portfolio

    While bonds are a vital part of an investment portfolio, they are often ignored.
  1. What determines bond prices on the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market and why bond prices and yields ... Read Answer >>
  2. Where can I buy government bonds?

    The type of bond dictates its purchase. Federal bonds are issued by the federal government, while municipal bonds are issued ... Read Answer >>
  3. What are the risks of investing in a bond?

    Are you thinking of investing in bond market? Learn more about bond market investment risk, including interest rate risk, ... Read Answer >>
Trading Center