3.2 Diagrams of Basic Debt Obligations

The cash flows for three fundamental debt structures help to explain difference between debt types based upon the security and source of payments. These diagrams do not account for all the parties involved in the financing. In particular, these diagrams omit the role of the underwriter, who acts as an intermediary between the issuer and the investor to create a market for the agency’s debt, and bond insurer or credit enhancer, who provides security against payment defaults. While these roles are essential, the diagrams are intended to represent only the flow of funds between the public agency and the investor, lender, or purchaser of the debt.70