The issuance of capital appreciation bonds (CABs) is fairly common in municipal finance, particularly for issuers in rapidly growing areas. Fitch views reliance on CABs with concern, as they can materially weaken an issuer's debt profile.

The primary feature of CABs is that both interest and principal payments are deferred until maturity. For rapidly growing areas, the primary appeal is that needed capital improvements can be funded immediately, but the repayment burden is shared with the larger future population.

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