What are conduit bonds primarily used for?

Conduit bonds are primarily used for financing projects utilized by third parties, such as private entities or organizations that require funding for specific ventures. When a governmental entity issues conduit bonds, it does so not to finance its own projects directly, but rather to facilitate the financing needs of a third-party borrower. This arrangement benefits the borrower by allowing them to access the tax-exempt status that the bonds typically carry, resulting in lower interest rates for the financing.

In this context, conduit bonds serve as a mechanism for public entities to support economic development and investment in their communities without directly issuing debt for their own projects. The third parties might be involved in various sectors, such as education, healthcare, or housing, where they can use the funds raised through conduit bonds to construct facilities or undertake projects that ultimately serve broader public interests.

This structure differentiates conduit bonds from other types of bonds, such as those primarily aimed at directly funding governmental infrastructure or public projects. While conduit bonds are related to public finance, their primary purpose is to serve as financing tools for third-party projects rather than being used directly by the issuing government.