A rate covenant is a legal commitment in a revenue bond designed to specify rates to generate a specified debt service coverage. Rate covenants are commonly used to assure bondholders that the revenue bond will be repaid using the proceeds from the project.
For example, suppose that a municipality issues a revenue bond to finance a wastewater utility project. A rate covenant may be included within that revenue bond defining the rates that the utility will charge consumers in order to cover its debt service to bondholders.
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