Series 50: Conduit Issuers

Conduit Issuers

Alternatively, states or government entities might function as conduit issuers on behalf of a third party that is responsible should the loan default. The municipality will issue the bond and then pass the funds along to the third party. These bonds are often a means to encourage local development, as the third party benefits from the government entity’s high credit rating.

Example: Popperville would like to attract more visitors. It decides to issue bonds as a conduit for a developer that specializes in water park hotels. The developer (conduit borrower) borrows money through the municipality (conduit issuer) at a lower interest rate than it would be able to on its own. Popperville can look forward to a new water park hotel to help bring in tourists.

Another entity that might use a conduit