Definition of Industrial Development Bond

Industrial Development Bond is a private purpose municipal bond whose proceeds are used to build a facility that is leased to a corporation. The debt service on the bonds is supported by the lease payments.

Applying "Industrial Development Bond" to Securities Exams:

For example: A corporation makes a decision to relocate their corporate head quarters to a different municipality, and that municipality does not have a suitable building in which to house the corporation. Instead of constructing the building itself, the corporation can strike a deal with the municipality whereby the municipality will issue a bond to raise the money to construct the facility. Once the facility is built the corporation will move in and make lease payments to the municipality, which will be used to pay off the bond issue. Ultimately, the corporation is responsible for paying off the principal and interest on the bond.

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