Definition
The term revenue-anticipation note refers to securities issued by municipal and state governments to finance a project; while that same project provides the income required to repay creditors. Revenue-anticipation notes (RAN) are short-term debt issues that will eventually use the revenues generated by a specific project to pay investors both the interest due as well as the original principal of the loan.
Explanation
When municipal and state governments have a near-term need to finance an emergent project, they will oftentimes issue revenue-anticipation notes, which can be used to bridge the timing gap between collecting money needed to fund a project and an emergent expense. When revenues are eventually collected from those parties using the asset, the funds are used to retire the note.
Revenue-anticipation notes (RAN) are usually issued for 12 months or less, and carry relatively low interest rates, since the earnings provided to investors are normally exempt from state and federal income taxes. These securities are considered relatively safe investments, since the covenant with the issuer will usually provide certain guarantees. For example, the funds generated will be used for a specific purpose, the maturity date of the note is fixed, and the revenue generated by the project will be used to repay the loan. That is to say, the money collected cannot be diverted to pay for other expenses until the loan is repaid.
Revenue-anticipation notes are oftentimes used to fund construction projects at performing arts centers, stadiums, museums, public zoos, as well as repairs to bridges, tunnels and parkways. Revenue-anticipation notes are one of several options municipal and state governments have at their disposal to fund a short term need. Additional sources of funds include tax-anticipation notes and bond-anticipation notes.