3.2.2 Debt Obligations Issued on behalf of a Borrower
With debt issued on behalf of another borrower, the issuer is neither the recipient of the proceeds nor, in most cases, the source of repayment. Debt issued on behalf of another entity (Figure 3-3) includes debt issued by a public agency for the benefit of a borrower, typically another public agency or an entity providing public benefit, such as a nonprofit hospital. The debt may be sold in the form of bonds, loans, or COPs. The proceeds are transferred to the borrower, who is obligated under a loan or lease agreement to repay the debt. Borrowers are likely to repay the debt with revenue earned from their activities. As a result, this structure is common to public enterprises such as water and wastewater utilities. Private activity bonds and exempt facilities bonds use this structure as well.
Figure 3-3
