Pollution Control Revenue, Industrial Development Revenue, and Conduit Financing Bonds
Gary M. Krellenstein Managing Director JPMorgan Securities
Pollution control revenue
(PCR) bonds and industrial development revenue
(IDR) bonds are the generic names for tax-exempt debt issued by municipal authorities to finance projects or facilities used by private corporations (e.g., investor-owned utilities, airlines, petrochemical companies). Between 1996 and 2006, over $90 billion in PCR/IDR bonds were sold. Of that amount, roughly half was issued on behalf of private utility companies. At the end of 2006, total PCR/IDR debt outstanding was estimated to be approximately $150 billion. Exhibit 64.1
shows the issuance by year and type from 1996 to 2006.
Although the distinction between PCR and IDR bonds has blurred in recent years, they were originally two distinct types of securities. PCR bonds were issued primarily on behalf of electric utilities and manufacturers to finance the construction and acquisition of pollution-control equipment. IDRs were usually issued as inducements for private companies to locate, utilize, and/or construct certain facilities that were expected to enhance local economic activity. Today, the terms are commonly used interchangeably 756
and the classification of a specific bond issue as a PCR or an IDR often depends on arbitrary distinctions such as the name of the issuing authority rather than the use of the bond’s proceeds.