Moral Obligation Bond – What it is and how it works

moral obligation bondA moral obligation bond is a municipal bond which the issuer includes a non-binding covenant in the bond indenture to include a budget recommendation to the legislative body responsible for appropriations, to make up any shortfall in money needed for debt service.

It is called a moral obligation bond because the legislative body responsible for appropriations is not legally required to make the appropriation.  Sometimes a moral obligation pledge is included instead of a general obligation pledge is included because it does not require voter approval.

For the definition and explanation of more bond related words visit the Learn Bonds glossary where we give the meaning of many additional terms.

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