Legal Definitions - bonded debt

Bonded Debt refers to money that an entity, such as a government or a large corporation, has borrowed by issuing formal debt instruments called bonds to investors. These bonds represent a promise to repay the borrowed principal amount along with interest over a specified period. It is a common method for raising significant capital for large-scale projects or operations.

• Example 1: Municipal Infrastructure Project

  The City of Springfield decides to build a new public transportation system, including new bus routes and light rail. To finance this multi-billion dollar project, the city issues municipal bonds to investors. The total amount raised through these bonds, which the city is obligated to repay with interest over the next 30 years, constitutes the city's bonded debt for this project. The city's future tax revenues are often pledged to cover these repayments.

• Example 2: Corporate Expansion

  Tech Innovations Inc., a rapidly growing software company, plans to construct a new research and development campus and acquire several smaller companies to expand its market share. Instead of seeking a traditional bank loan for the entire amount, the company decides to issue corporate bonds to institutional investors and the public. The sum of money raised through these bond sales, which Tech Innovations Inc. must repay to bondholders over a set term, represents its bonded debt. The company's future profits and assets serve as the underlying security for these obligations.

• Example 3: State Education Funding

  A state government aims to modernize its public university system by constructing new dormitories, upgrading laboratory equipment, and renovating lecture halls across several campuses. To fund these improvements without increasing taxes immediately, the state issues general obligation bonds, which are backed by the full faith and credit of the state government. The total principal amount borrowed through these bonds, along with the accumulated interest that the state is committed to paying back to investors over the coming decades, is considered the state's bonded debt for these educational initiatives.