What are industrial revenue bonds (IRBs)?

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AcadiFi · Accepted Answer

Industrial revenue bonds (also industrial development bonds, IDBs) are tax-exempt municipal bonds issued by a state or local authority on behalf of a PRIVATE corporate borrower for a qualified facility (manufacturing plant, pollution control equipment, solid waste disposal). The municipality is the nominal issuer — lending its tax-exempt status — but the PRIVATE COMPANY is the real obligor. Cash flows: company makes lease or loan payments to the conduit authority, which passes them through to bondholders. Credit risk is the COMPANY'S, not the municipality's. Key federal rules: (1) IRC Section 144(a) limits small-issue manufacturing IRBs to $10M per project with $40M aggregate capex limit; (2) bonds are 'private activity' bonds → interest is subject to AMT for individual holders; (3) use restrictions — 95% of proceeds must fund qualifying property. Example: Crestline Industrial Development Authority issues $9.5M IRBs on behalf of Ridgeline Plastics to build a $14M injection-molding facility. Ridgeline's credit rating (BB+) drives pricing — authority credit is irrelevant. Coupon 4.8%, higher than an equivalent GO (3.2%) due to BB+ corporate credit and AMT status. For investors: evaluate like a corporate bond with muni-tax exempt treatment (non-AMT brackets); verify security structure (first-mortgage lien on equipment is common).

What are industrial revenue bonds (IRBs)?

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