Bonds are basically private loans gone public. A municipality or organization sells bonds to investors in order to raise cash; the investors collect interest on the bonds, and can trade them like stocks, or hold on to them until they mature. The value
Bonds are basically private loans gone public. A municipality or organization sells bonds to investors in order to raise cash; the investors collect interest on the bonds, and can trade them like stocks, or hold on to them until they mature. The value and maturity payout of the bonds are secured against some form of collateral (usually the future revenue stream of the project in question). Arts organizations have been issuing bonds for a little while now, usually in anticipation of a major contruction project. Lincoln Center, for instance, began issuing bonds in 2006 to fund its current renovation. It's more efficient than old-fashioned fundraising because an organization isn't stuck waiting to begin construction until sufficient funds have been raised; they can pay the contractors right away, and then devote their development to raising money to pay the interest on the bonds, and eventually pay them off.
Bonds, like any other investment, are risky, and you can measure that risk by looking at the interest rate—the higher the rate, the more chance there is the market thinks that you might not be able to recover the full value of the bond. This is also why rating agencies like Standard & Poor's or Moody's exist: they rate the credit of bond-issuing organizations. The highest rating (AAA, in S&P's grading system) means that the organization can charge a lower interest rate. A lower rating (usually B or lower in S&P's system) results in "junk bonds," more a target for short-term speculation than long-term investment (since no one thinks such bonds will actually pay out at maturity, investors make money by gambling on fluctuations in trading value).
So now you know about the bond market. But here's a question: how do you rate a bond secured against the collateral of possible future philathropic donations? Tricky. Or how does one determine the credit-worthiness of bonds from an organization, like Lincoln Center, that's never issued them before? Equally tricky. Even rating bonds from cities and states is a little too much guesswork for the market, which is why, back in the 1970s, bond insurance was invented. You buy insurance from a bond insurance company (for example, Lincoln Center originally had its bonds insured by a corporation called ACA Financial Guaranty), and that company will guarantee that the bond will continue to pay its interest and 