What is Underlying Debt?
Underlying debt has to do with previous loan obligations that are issued by a government entity that is included in a larger entity and is currently in existence. The understanding is that while the debt obligation was incurred by the smaller entity, the larger entity has some degree of secondary responsibility for as long as the debt is outstanding. Because of this partial responsibility, the larger entity can claim the debt incurred by the smaller entity as underlying debt. Perhaps the easiest way to understand underlying debt is to think in terms of municipal bonds that are issued by a city or town. Generally, the bonds are issued with the understanding that persons who purchase the bonds will receive ultimately be repaid the balance of the purchase price plus some type of additional compensation for the transaction. While the municipal bond is issued by the city, the fact is that the state also will also have some degree of responsibility or liability in the event that the city def
