Bond or debt ratings assess the ability and willingness of an issuer to repay
debt and make periodic interest and debt service payments when due. Good
bond ratings broaden the market for debt and reduce or hold down interest
rates and costs. A full faith and credit or GO bond rating for a jurisdiction
depends on the strength, growth, and stability of its economy; the jurisdiction’s
financial condition, prospects, and practices; its net debt burden and
capacity, including the rate of pay-down on existing debt; and the leadership
and management provided by elected and top administrative officials. A revenue
bond rating depends mainly on the profitability and prospects of the
enterprise or activity for which revenue bonds are being issued. The pledged
net revenues of the enterprise or activity must exceed or cover annual debt
service on the bonds each year. Ratings for capital lease debt for general government
facilities depend on the general creditworthiness of the issuer and
the essentiality to the issuer of the project financed with the debt. The
assumption underlying essentiality is that a debt issuer is unlikely to stop
making annual payments on capital lease debt, even though it is subject to
annual appropriation, if the debt finances a project that is essential—for
example, a local jail. Special obligation or limited tax debt is rated in terms
of the strength of the revenue stream that supports the debt.