Underlying-debt definitions

A term that is used in the municipal bond market to refer to the debt of a government agency within the jurisdiction of the larger government unit that has partial credit responsibility for repayment. The larger government unit considers the debt of the smaller agency to be underlying debt. Typically, the larger agency is more creditworthy than the smaller entity and this sharing of credit responsibilities generally acts as a credit enhancement for the issuing authority. For example, a turnpike authority for a state may issue its own debt, but if there is any problem with default, the state government would have some obligation to see that default is avoided.