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DEBT FINANCING OPTIONS FOR REFINANCING OR CAPITAL PROJECTS CALIFORNIA ASSOCIATION OF INDEPENDENT SCHOOLS JANUARY 23, 2010. Presented By: Steven J. Stogel In Participation With: Deborah Richman Head of The Turning Point School Dated: January 23, 2010. Turning Point School – Phase I
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DEBT FINANCING OPTIONS FOR REFINANCING OR CAPITAL PROJECTS CALIFORNIA ASSOCIATION OF INDEPENDENT SCHOOLS JANUARY 23, 2010 Presented By: Steven J. Stogel In Participation With: Deborah Richman Head of The Turning Point School Dated: January 23, 2010
Turning Point School – Phase I 8780 National Boulevard Culver City, CA
PHASE II PHASE I • Site Plan of Phase I (2.0 acres) and Phase II (1.8 acres) • Increased enrollment capacity from 350 ± to 480!
Phase II Project and Financing: Original (2006) Estimated Construction Costs (2012 start) $10,000.000 Original Estimated “Total Development Costs” including A&E, title, legal, insurance and other costs $15,000,000 Actual 2009 Construction Costs, all in $ 7,700,000 Actual Total Development Costs $11,500,000
Tax Exempt Debt Terminology: • Unenhanced • Enhanced (Letter of Credit (“L.C.”)) • Fixed • Floating – LIBOR and SIFMA Index • Section 501(c)(3) • Section 145 – Bank Qualified Bonds (“BQBs”) • Issuer • Term of Bonds • Terms of Enhancement/Balloon Date • Prepayment Lock-out/Yield Maintenance • Project Financing • Pledge Financing
FORMAT OF TAX EXEMPT BONDS 501(C)(3)BQBs Issue: Qualifying Agency Qualifying Agency Trustee: Bank/Custodian Bank/Custodian Offering: Public Direct to Bank Securities Law: Yes No Legal & Other Costs: 2-4% 1.5-3% L. C. Bank: Rating of L.C. Bank is Key Determined by Bank Unenhanced: Rating/Condition of School is Key Determined By Bank Interest Mode: Fixed/Floating Fixed/Floating
SECURITY INDUSTRY AND FINANCIAL MARKETS ASSOCIATION “SIFMA” INDEX http://www.sifma.org/
ORIGINAL TURNING POINT PHASE I FINANCING Issue Date: 2001 Original Issue: $12,000,000 Issuer: California State-Wide Community Agency IRC Code Authorization: Section 501(c)(3) Form: Unenhanced Interest Rate: 6.5% Term: 30 year, self amortizing
CURRENT TURNING POINT PHASE I REFINANCING Issue Date: September 19, 2009 Amount: $11,370,000 Issuer: California Municipal Finance Authority IRC Code: BQBs Form: Enhanced with a US Bank Letter of Credit Annual Floating Rate: 13 b.p. (1/13/10) Annual L.C. Costs 200 b.p. CAP Purchase: 400 b.p. Amortization: Level 30 year schedule (after 16 month interest only period) Term of L. C. 10 years
CURRENT TURNING POINT PHASE II FINANCING Issue Date: September 19, 2009 Amount: $6,865,000 (New Construction) Issuer: California Municipal Finance Authority IRC Code: BQBs Form: Enhanced with a US Bank Letter of Credit Annual Floating Rate: 13 b.p. (1/13/10) Annual L.C. Fee 200 b.p. CAP Purchase: 400 b.p. Amortization: Level 30 year schedule (after 16 month interest only period) Term of L. C. 10 years
TOTAL COST OF PERMANENT FINANCING PHASE I AND PHASE II Phase I Phase I & II ** 2001 Series * 2009 Series Annual Cost $975,000 $ 940,000 $ 385,000 Interest, L.C. Fee and Other 535,000 2011 Principal 25,000 CAP Cost @ $25,000 $ 940,000 * Original Phase I debt was $12,000,000. ** Based on $15,000,000 balance, as of 1/1/11, net of programmed reductions of principal.
SPECIAL RULES FOR BANK QUALIFIED BONDS (“BQBs”) • General Rule for Acquiring/Carrying Tax Exempt Debt • 1986 “Rules” under TRA of 1986 • $10,000,000 limit per City (including City and non-profits!) • Interest non-AMT • 80% interest deduction • 2% test for Banks as Purchaser • 2009 Rules under the American Recovery & Reinvestment Act (the Obama Stimulus Bill) • $30,000,000 limit per City and per every (c)(3) non-profit • Interest non-AMT • 100% interest deduction • Expand 2% test for Banks • BQBs can be issued only until December 31, 2010
BANK UNDERWRITING CONSIDERATIONS IN L. C. FORM OR BQB • Term of Bonds • Term of Enhancement • Financial Statement of School • Cash Flow Consistency • Enrollment History • Who is on the Board of Directors • Annual Giving • Percentage of Scholarship Support • Prior Capital Campaigns • Endowment • Real Estate Appraisal Tests • Real Estate Value-As-Is • Going Concern as a School • Recourse • School Assets • Negative Pledge • Financial Covenants • No Material Adverse Change • Liquidity Covenant • Relationship (Prior & Future) with Bank • Time Lines • Conventional Loan Alternative
INTEREST RATES RANGES (1/11/10) SECTION 501(c)(3) UnenhancedL. C. FloatingL. C. Fixed 5 yrs.L. C. Fixed 10 yrs. 6.5% SIFMA Index 3.75% ± 4.5% ± + 2.00 - 2.25% L.C. Fee & Other = 2.25 - 2.75% BQBs UnenhancedFloating5 Year10 Year N/A 67% of 30 day 3.25% ± 4% ± LIBOR + 160– 200 b.p. “spread” = 1.75% to 2.25%
BOARD CONSIDERATION IN USE OF DEBT • Refinancing to Lower Costs • New Debt to Build • Costs of Construction Today! • Impact on Enrollment – A Positive! • Effects on Fund Raising For Construction of Capital Projects • Pre Construction Start: Easiest for both restricted or unrestricted gifts • During Construction: Well received as new construction is tangible and present • Post Completion of Construction – hardest, but multi-year (even up to 7 years!) pledges from • “Day 1” are readily incorporated into Financing Model • Long After Completion of Construction • Next “Phase” Story • Debt Retirement • Enrollment Strategy • Each School’s Story is Unique