Coverage represents the cash flow or capital used to ensure repayment of a bond, coming from tax revenues, project revenues, or separate loans. Covered bonds are securities backed by separate groups of loans that usually carry two to 10 year maturities and have high credit ratings.
For example, a municipality might issue covered bonds in order to reduce their interest expenses as opposed to issuing potentially less secure general obligation or revenue bonds. After all, higher coverage ratios equate to greater safety and a reduced interest rate.
