Underlying Debt

Underlying debt is a municipal bond term that relates to an implicit understanding that the debt of smaller government entities might have backing from the creditworthiness of larger government entities in the jurisdiction. On their own, these smaller entities might have a hard time raising funds if they don’t have a robust financial position. However, the implicit backing of larger entities facilitates borrowing by smaller entities and allows them to obtain lower interest rates on their obligations. People consider the municipal bonds to be the underlying debt of the backing entity.