What could be a consequence of not adhering to the standard limits on principal payments in a municipal bond?

The consequence of not adhering to the standard limits on principal payments in a municipal bond can lead to a potential default on the bond. Default occurs when the issuer is unable to meet the contractual obligations stipulated in the bond agreement, including timely principal and interest payments to bondholders. If a municipality exceeds these standard limits, it may strain its financial resources, impairing its ability to service its debt. This can create alarm for investors, as it signals a potential risk of the municipality failing to repay the borrowed funds. Such a situation not only undermines the creditworthiness of the municipality but can also lead to higher borrowing costs in the future, should they need to refinance or issue new debt. Additionally, defaulting on bonds can have severe repercussions for the municipality, including loss of access to capital markets and diminished public confidence.