Presentation Transcript

1. FINANCING SCHOOL FACILITIES Presented by: Richard Moreno, Executive Director CSSC – Building Hope richmoreno6@gmail.com (954) 592-2740 or (954) 767-1070 Panelists: Bill Brooks – Mayor – City of Belle Isle charter School Chuck West – Chairman, Central Charter School Jane Ellis – Self-Help
2. “Financing School Facilities”
3. Objectives To communicate the importance of the assessment process To clarify the steps involved in needs assessment To enable participants to make the various calculations and fill out worksheets relevant to needs assessment An estimate of the school’s physical requirements Be Flexible Set short and long term goals Needs Assessment
4. Needs Assessment Number of students Class size estimation Number of subjects Number of classrooms Curriculum-specific classrooms
5. Corporate Governance Financial Characteristics School Characteristics Red Flags Key Underwriting Criteria
6. A functional relationship between the Authorizer  Board of Directors  Administration Well defined roles and responsibilities of Board & Administration including a succession plan Strong financial controls and audit procedures in place to ensure financial oversight Key Charter School Underwriting CriteriaCorporate Governance
7. Demonstrated ability to operate within FEFP funds to cover expenses and generate sufficient cash flow Debt service < 18% to 20% of total operating budget with at least 5% of operating expenses in cash A realistic 5 year pro-forma demonstrating sufficient cash flow from per pupil revenues for debt repayment Key Charter School Underwriting CriteriaFinancial Characteristics
8. Minimum 3 years of operation with enrollment of 300 students or more with a strong waiting list Strong academic performance as indicated on standardized test scores One successful charter renewal from authorizer along with positive enrollment trends Key Charter School Underwriting CriteriaSchool Characteristics
9. High staff / Board / student turnover Poor academic and financial performance that leads to tension between school and authorizer Lack of a clear succession plan for Board and Administration Lack of Board or Administration understanding of the process of purchasing a facility and the various complexities of a real estate transaction (i.e. appraisals, bidding of construction, zoning requirements, environmental issues, etc…) Key Charter School Underwriting CriteriaRed Flags
10. Traditional Bank Tax exempt bond Issue Community Development Financial Institution (CDFI) New Markets Tax Credit Real Estate Investment Trust Financing Options
11. Loan to Value an important consideration 20 to 25 year amortization 3 to 7 years loan term Fixed or Variable Interest Rate 10% to 30% equity required Traditional Bank Financing
12. Higher Loan to Value than traditional lenders Generally focused on underserved communities Have dedicated Charter School Lenders More competitive loan pricing Community Development Financial Institution(CDFI)
13. Higher Loan to Value than traditional lenders or CDFI’s Focused on underserved communities that qualify as highly distressed Have dedicated Charter School Focus Partial loan forgiveness depending on structure Seven year term New Markets Tax Credits
14. Tax Exempt Bond Issue Tax Exempt Bank Loan Pros Amortizations of up to 20 years Fixed and variable rates available Suited for short to intermediate term needs Cost of issuance is lower More cost effective for smaller loans Amortizations of up to 30 + years No need for an equity contribution Fixed rates available Interest rates can be fixed for 30 years Best suited for long-term needs No prepayment penalties 100% + financing available

    Raising Capital On A Tax-Exempt Basis

    Cons Need must be $6.0 million or greater IRS restrictions on use of bond proceeds Cost of issuance is higher Viewed on a (80/20) Loan to Value (LTV) Loan rate often reprices in 5 or 10 years Balloon payments need to be refinanced Requires an equity contribution Prepayment penalties can be costly
15. Charter Schools enjoy the benefit of tax-advantaged borrowing through the use of tax-exempt bonds. In the typical tax-exempt bond transaction, a conduit governmental agency issues bonds carrying interest rates below those of taxable bonds on behalf of the charter school. Access to the Municipal Bond Market
16. Upon issuance, the bonds are purchased by an underwriter and sold to institutional investors, the general public, or both. The conduit agency simultaneously lends the proceeds to the charter school at repayment terms specified in the loan agreement and the bond indenture. Access to the Municipal Bond Market
17. Charter Schools have the option to issue bonds based on their own credit merit. When accessing the public market, investors will rely on the rating provided by Moody’s, Standard & Poor’s or Fitch to determine the appropriate cost of capital rates. If the Charter School is unable to achieve an Investment Grade designation, interest rates are likely to be higher as the universe of investors shrinks. In either case, investors will require financial covenants, collateral, and/or monies set aside in the case the borrower is unable to make a scheduled payment. Any combination of the above may be required at the time of financing based on the market conditions. Access to the Municipal Bond Market
18. Construction Costs Eligible project Construction Site acquisition and testing Equipment Architect Financing Costs Legal fees Underwriter’s discount Printing fees Trustee fees Credit rating fee Capitalized Interest Conduit issuer related fees - REFINANCING OF EXISTING DEBT - Typically funded through bond proceeds, equity or the interest earned on bond proceeds

    Project Finance

19. No equity required Possible need for Credit Enhancement Provide turn key facility solutions 20 to 30 year lease term Annual rent increases Opportunity for purchase option Real Estate Trust Investment
20. FINANCING SCHOOL FACILITIES Presented by: Richard Moreno, Executive Director CSSC – Building Hope richmoreno6@gmail.com (954) 592-2740 or (954) 767-1070 Panelists: Bill Brooks – Mayor– City of Belle Isle charter School Chuck West – Chairman, Central Charter School Jane Ellis – Self-Help