Municipal Bond Forum
RANs
Q
If a town issues both rated G.O.s and unrated Revenue Anticipation Notes (RANs), can the same rating be assumed for the unrated RANs?
A
James A. Klotz responds:
In short, the answer is no. The general obligation rating indicates the town has pledged to use all of its resources, including raising ad valorem property taxes, in order to pay debt service. A G.O. bond typically carries the strongest pledge a community can give.
An unrated RAN, on the other hand, can be backed by a particular revenue stream up to the limit of that revenue stream. For example, a sales tax on hotels and meals. In such a case, only the tax proceeds from hotels and meals are pledged, nothing else. RANS are usually issued in anticipation of receiving a specific revenue source and usually must be repaid by the end of the current fiscal year.
In summary, the RAN is normally more limited in the pledge behind it, has a shorter time limit within which the revenues must be collected, and is restricted in ways a GO pledge is not.
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