| a bond issued by a state, county, city, or town, or by a state authority or agency to finance projects. |
Bonds issued by nonprofit bodies such as cities, public hospitals, and school boards. They bear relatively low interest rates, but accrued interest is exempt from federal income tax.
municipal bond
Case Study Municipal debt, like corporate debt, ranges in credit quality from investment-grade to very speculative. On November 9, 2001, bond trustee State Street Bank and Trust informed holders of $9.7 million of bonds issued by Marineland Foundation, a nonprofit corporation established by the city of Marineland, Florida, that they would receive $245 for each $1,000 of principal amount. Unfortunately for bondholders the debt was being repaid at slightly less than 25¢ on the dollar. The unrated Marineland bonds had been issued at yields of 8.5% in 1995 to institutional investors and remarketed in 1996 to individuals. Funds raised from the bond issue were used to purchase one of Florida's oldest tourist attractions. Opened south of St. Augustine, Florida, in 1937 as an underwater movie studio, Marineland opened to the public with dolphin and sea lion shows one year later. Attendance suffered beginning in the 1970s following the opening of Disney World, Sea World, Universal Studios, Circus World, and a host of other bigtime Florida attractions. Revenues at the refurbished oceanside aquarium proved too small to cover variable and fixed expenses, including interest on the debt. Marineland had been sold yet again at the time the agreement was reached with bondholders. The new owners intended to promote the attraction as a research resort where visitors could scuba-dive, hike, and learn about marine life. |