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CARS™: A New Vehicle for CDFIs & Investors Federal Reserve Bank Conference St. Louis, MO

CARS™: A New Vehicle for CDFIs & Investors Federal Reserve Bank Conference St. Louis, MO. May, 2007. Agenda. Review Purpose of CARS™ How does CARS™ work? CARS™ Implementation: Where are we? Feedback on CARS™ What Can CARS™ do for Investors? Questions/Discussion.

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CARS™: A New Vehicle for CDFIs & Investors Federal Reserve Bank Conference St. Louis, MO

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  1. CARS™: A New Vehicle for CDFIs & Investors Federal Reserve Bank ConferenceSt. Louis, MO May, 2007

  2. Agenda • Review Purpose of CARS™ • How does CARS™ work? • CARS™ Implementation: Where are we? • Feedback on CARS™ • What Can CARS™ do for Investors? • Questions/Discussion

  3. CARS™: The CDFI Assessment and Rating System • Purpose • To increase the amount of capital available to CDFIs and to promote CDFI performance as a primary criterion determining the flow of capital through CDFIs. • Use • Currently rating unregulated CDFIs with 3-5 years lending experience. Primarily debt investors.

  4. CARS™: The CDFI Assessment and Rating System • Objectives • Facilitate investments by existing investors • Attract new investors and funders (longer term) • Help prepare CDFIs for the capital markets • Promote alignment of capital with performance • Help CDFIs improve their performance • Promote standardization of information and industry-wide performance standards

  5. How Does CARS™ Work? (1) Full CARS™ Analysis • Impact performance rating (4 criteria): AAA, AA, A, B • Policy Plus • Financial strength and performance rating (CAMEL): 1-5 • Comprehensive analysis of impact performance and financial strength and performance with text, 5 years of financial spreads, charts, tables, etc. • Annual reviews

  6. How Does CARS™ Work? (2) • Impact Performance • Assesses how well CDFI does what it says it’s trying to do • Four criteria: • Alignment of strategy and operations • Effective use of financing resources • Tracking outputs that show effectiveness • Tracking outcomes or impacts that show effectiveness

  7. How Does CARS™ Work? (3) • Financial Strength and Performance • Assesses the CDFI’s overall credit-worthiness • Five criteria: • Capitalization • Asset Quality • Management • Earnings • Liquidity

  8. How Does CARS™ Work? (4) • Details on methodology and process in CARS™ on the Road – Edition Two, OFN website • CARS™ subscribers indicate CDFIs for which they would like a ratings analysis • CDFI joins pipeline; scheduled for rating; pays fee • Analysts (2) review extensive documents; do financial analysis • Analysts conduct 2-day site visit; review files; interview management; guided by detailed manual • Feedback call with CDFI and Opportunity Finance

  9. How Does CARS™ Work? (grid sample)

  10. How Does CARS™ Work? (5) • Analysts draft document – 40 pp with financial spreads, analysis, charts, graphs, etc. • CDFI reviews and suggests revisions • CDFI reviews final documents, agrees to disseminate and submits a response • Analysis and CDFI response go to ratings committee • Analysis and rating sent to subscribers – must pay to have access to analysis. CDFI can share rating. • FYE Update and Annual Review • After 2 Annual Reviews CDFI goes through full process again

  11. CARS™ Implementation (1) • 27 CDFIs rated with analyses available • 12 in process or scheduled • Developing and distributing annual reviews • 18 investor subscribers • Effective analysis and rating methodology • 11 experienced CARS™ analysts • High level advisory board of 18 • Investors (banks, SRI, Foundations) • CDFI and industry representatives • Ratings experience (Standard and Poor’s)

  12. CARS™ Implementation (2) • Actively marketing to banks, foundations, insurance companies, religious investors, SRI investors, etc. • Subscribers using CARS™; beginning to “condition” deals on a CARS™ rating. • Conveying to CDFIs that easier to talk to if rated • Including covenants: must maintain a certain rating • Making capital commitments for rated CDFIs

  13. CARS™ Feedback from Subscribers 2006 Interviews with subscribers • Incorporating CARS™ materials into due diligence and monitoring • Lenders see value as equal to or greater than cost already – more value as more CDFIs rated • Recognize rigor and quality of analysis • Some investors using for prospecting for investees • Asking CDFIs whether or not rated and, if not rated, why

  14. CARS™ Feedback from CDFIs • CDFIs clearly improving their performance before/after CARS™ analysis • CDFIs respect process, recognize value for own performance, recognize value for industry • Some disagree with their rating or details in analysis • Eager to see financial benefits of being rated • Access to additional capital or better terms • Facilitated underwriting process

  15. What Can CARS™ do for Investors? • Expose them to additional investment opportunities and enable them to vet them efficiently • Dramatically decrease time required for due diligence • Improve and document high quality due diligence process for CDFI files • Provide annual information to facilitate monitoring of CDFI investments • Show support for transparency and accountability in the CDFI industry

  16. Purchase Options • Any purchase includes • Full analysis and rating • Fiscal year-end update • 2 annual reviews • Single CDFI purchase - $2,500 • 3-pak subscription - $5,000 • Full subscription (12 analyses) - $15,000

  17. For More Information • To subscribe • To receive a complementary sample analysis • To request additional information Kathy Stearns 215-320-4307 kstearns@opportunityfinance.net cars@opportunityfinance.net

  18. CARS™ Appreciates Support from • JP Morgan Chase Foundation • Ford Foundation • Fannie Mae Foundation • F.B. Heron Foundation

  19. The End

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