3.1.6 Types of Debt Instruments

Further, debt instruments may take a variety of forms.

BONDS – Bonds are debt instruments issued directly by the public agency issuer (for example, a city). The basic documentation includes an indenture or trust agreement (between the public agency issuer and a trustee) or a bond resolution (adopted by public agency issuer) and a paying agent agreement (between the public agency issuer and the paying agent). Bonds generally mature more than 1 year after the date of issuance. The issuer makes debt service payments to a trustee or paying agent who makes payments to bondholders.

NOTES – Like bonds, notes are debt instruments executed and delivered by a public agency. The basic documents include a trust agreement (between the public agency and a trustee) or a note resolution (adopted by the public agency) and a paying agent agreement (between the public agency and a paying agent). Notes generally have a shorter term than bonds, often maturing in less than 1 year. The public agency makes payments directly to the trustee or paying agent who makes payments to noteholders.

DIRECT LEASES – Simple examples of direct leases are equipment leases. The public agency leases the property from the lender, which may be the vendor of the property, a leasing company, or a bank. Lease payments made by the lessee cover principal and interest. The lessor may transfer the lease to another party. See Section 3.7.2, Direct Leases.

COPs – Certificates of Participation are financial instruments that provide a means to allow the rights to receive revenues under a lease or other agreement to be sold to multiple investors. See Section 3.6.3, Certificates of Participation.