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Financing for Nonprofit Capital Projects: The Guthrie Theater

2. Guthrie Theater Background. First classical regional theater in U.S.Established in 1963 by Tyrone GuthrieArtistic Director, Joe Dowling, began in 1996His new vision for Guthrie Theater: ?National Theater Center"Need for new three-stage theater Original Cost $75 million. 3. New Guthrie The

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Financing for Nonprofit Capital Projects: The Guthrie Theater

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    1. Financing for Nonprofit Capital Projects: The Guthrie Theater Jay Kiedrowski, Senior Fellow, HHH Institute, U of MN (Former Treasurer, Guthrie Theater) September 8, 2008

    2. 2 Guthrie Theater Background First classical regional theater in U.S. Established in 1963 by Tyrone Guthrie Artistic Director, Joe Dowling, began in 1996 His new vision for Guthrie Theater: “National Theater Center” Need for new three-stage theater Original Cost $75 million

    3. 3 New Guthrie Theater Guthrie Theater hired world class architect, Jean Nouvel, in 2001 Project grew to $125 million by 2003 Financing Plan: - $40 million of State Bonding - $75 million of private contributions - $10 million from unidentified sources

    4. 4 New Guthrie Theater - Proposal

    5. 5 Reality MN Legislature provided only $25 million of bonding (vs. $40 million) in spring 2003. Fundraising goal was increased from $75 to $85 million in May 2003 An additional $15 million was needed to complete the financing Financing package needed to be in place to break ground October 1, 2003 or cost of project would increase substantially

    6. 6 Creative Financing Finance and Investment Committees of Guthrie met with Public Finance Bankers Use of “Creative” Financing Explored Tax-exempt bonds could be sold to finance construction (Expected cost 2.5%) Private contributions could go into endowment until project was completed (Expected return of 6.5%) Net of 4.0% per year for 5 years or $15 million

    7. 7 Creative Financing

    8. 8 Requirements for Financing Guthrie Board approval for overall financing City of Minneapolis approval for debt use Hennepin County Commissioners approval for land MN Commissioner of Finance approval for bonds Letter of Credit from local banks for bonds Detailed schedule of private contributions Definitions of collateral and artistic control

    9. 9 Endowment Investment Policy Changes OLD Large Equity 30% Small Equity 15% Inter. Equity 20% Fixed Income 25% Hedge Funds 10% NEW Large Equity 20% Small Equity 10% Inter. Equity 20% Fixed Income 5% TIPS 15% Conservative Fund of Hedge Funds 30%

    10. 10 2003 Start $85 million in AAA tax-exempt 501(c)(3) variable rate 20-year demand revenue bonds were sold by the City of Minneapolis (with $65 million to be retired in 60 months) Guthrie pledged general assets for letter of credit on bonds, and accepted possibility of debt Issues of collateral and artistic control resolved Private contributions were put in Guthrie Endowment as received Project broke ground on time

    11. 11 New Guthrie Theater Under Construction

    12. 12 Update 2008 Project completed on time and within budget Opened on June 24, 2006 $85 million in bonds still outstanding at average cost of 5.0% Net endowment return was as much as $11 million in excess of normal returns and borrowing costs for first 59 months, but now is $5.5 million. Lock-in of interest rates on bonds and collars on equity holdings occurred 2007 $20 million in bonds retired early.

    13. 13 New Guthrie Theater Completed

    14. 14 The Future $45 million of debt outstanding to be paid-off March of 2009 Up to $20 million will remain outstanding for another 14 years Investment policy will be changed to normal asset allocation before March 2009 New issues of replacement costs/depreciation and additional programming are new focus

    15. 15 Lessons Learned Energetic collaborative effort required of all stakeholders All stakeholders need to understand the risks vs. rewards Endowment investment policies should be changed to protect down-side Creative use of Bonding/Endowment can be a useful tool, but requires ongoing monitoring and reasonable markets

    16. 16 Questions/Comments?

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