Guaranteed Security

A bond or stock that is guaranteed as to principal or interest or both by someone other than the issuer. A current example is tax-free industrial development [revenue] bonds issued by local government authorities to build facilities for industrial corporations. The corporation leases the property and guarantees payments which will return the interest and retire the principal on the bonds. This method of financing results in substantial interest savings by the corporation since tax-free interest rates are substantially less than taxable interest rates.