A Hidden Gem: Special Revenue Bonds

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Special Revenue Bonds

David Belton, CFA

David Belton, CFA - Head of Municipal Bond Research

Summary

Standish believes that a critical element to security selection in the municipal bond market is to distinguish between Special Revenue and dedicated tax credits when determining relative value. In cases of fiscal stress investors should consider that Special Revenue bondholders are positioned significantly better than dedicated tax bondholders.

 

Standish has built its investment philosophy on the foundation that revenue bonds offer relatively more attractive after-tax risk-adjusted returns than general obligation bonds. In light of this, we invest significant resources in the pledged tax sub-sector and take a conservative view when determining which dedicated tax bonds would be considered Special Revenue bonds by a bankruptcy court. We believe they represent a relatively small portion of the dedicated tax bonds outstanding; an experienced institutional investment manager has the capability to identify these bonds appropriately. 

Standish has built its investment philosophy on the foundation that revenue bonds offer relatively more attractive after-tax risk-adjusted returns than general obligation bonds. In light of this, we invest significant resources in the pledged tax sub-sector and take a conservative view when determining which dedicated tax bonds would be considered Special Revenue bonds by a bankruptcy court. We believe they represent a relatively small portion of the dedicated tax bonds outstanding; an experienced institutional investment manager has the capability to identify these bonds appropriately.

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