Copyright © 2014 Charter School Capital, Inc. Facilities Financing for CA Charter Schools Webinar 9/30/14
May 29, 2015
Copyright © 2014 Charter School Capital, Inc.
Facilities Financing for
CA Charter Schools
Webinar
9/30/14
Copyright © 2014 Charter School Capital, Inc.
Welcome
3Copyright © 2014 Charter School Capital, Inc.
WELCOME
• Chip Eady, Attorney, Procopio, Cory, Harsgreaves & Savitch
• Stuart Ellis, President and CEO, Charter School Capital
Panelists
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FACILITIES
• Understand various funding structures
• Balancing facilities dreams and budget realities
• Funding approval and keys areas of focus
• Project execution and timing
• Other considerations and best practices
What we will cover today
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Facilities Funding Structures
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CONSIDERATIONS
• Ownership is an investment
• Control is critical to maintain stability or growth
• Evaluate dollars spent not percentage rates
• Cost is not just money, but time and opportunity
What to consider in a financing structure
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WANT – NEED – BUDGET
What Can We Afford? What Is Required?Existing reserves Academic mission
Ongoing % of revenue Growth plan for attendance
Fundraising – public/private Specialty requirements
Funding alternatives Local considerations
Things to consider
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FUNDING COMPARISON
Criteria Cash Bank Bond Lease Option
Cash needed to close
$7M $2.1 – 2.8M ~$200 – 500K $0 – 100K
Annual cost $0 $350 – 700K $600 – 800K $630 – 700K
Underwriting None Min 5 yrsSurplusAssets + Revenue
Min 3 yrsSurplusRating?
No minimumAcademic successFlexible
Security Interest None Real estate + all assets
Real estate + all assets
None
Growth Options Cash = Build Refinance risk Rate risk
Refinance riskCovenants
Scalable, expandable
Considerations/Challenges
Reserves? 20+ - 40% equity 5-20yr amortization
100% financing Transaction costs “Road show”
100% financing No amortization
Note: $7 million project example; bank assumptions 6-8% interest on debt, 30-40% equity, 10-20yr amortization; bond assumptions 6-9%
interest rate, 20% transaction cost/additional financing, 30yr amortization; lease options assumptions 100% financing, 9-10% cap rate.
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BOND REQUIREMENTS
• Pledge of state funding assigned to trustee
• Fully funded debt service reserve
• First mortgage collateral
• Level annual debt service amortization
• Liquidity covenant 45 days cash on hand
• Debt service ration covenant of 1.10x
• Debt service default covenant of 1.0x
• Capital improvement reserve funding
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PROJECT $5mm
Security Interest
Growth Options
Underwriting
Annual cost
Cash needed
Comparison for illustrative purposes only. Rankings are based on how hypothetical “School A” might view its options based on unique attributes and objectives.
Criteria Cash BondTraditional
BankLease Option
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PROJECT $20mm
Security Interest
Growth Options
Underwriting
Annual cost
Cash needed
Comparison for illustrative purposes only. Rankings are based on how hypothetical “School A” might view its options based on unique attributes and objectives.
Criteria Cash BondTraditional
BankLease Option
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BOND READINESS
• Waiting for approval of discretionary entitlements
• Quantifying costs of design, acquisition and build out
• Completing at least one charter renewal
• Recent management, staff or faculty turnover
• Recent or uncertain adverse financial developments
Factors that may delay bond financing
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BOND READINESS
• Adopt an official intent resolution
• This will aid in keeping future options open
Official intent resolutions
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Funding Approval and Execution
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PASSING THE TEST
• Attendance
– Stable or increasing enrollment
– Strong demand – waiting list, expanding grades, market growth
• School / Leadership History
– Experienced leadership team with successfully history
– Market leading academic performance(local peers, district, state)
• Numbers have to “pencil”
– Sound financial performance and pro forma
– Debt service / lease payment target <20% of total revenue
– Valuation of target property (land)
• Governance issues
– Authorizer relationship
– Operational excellence and adherence to internal controls
Funding structure requirements
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FACILITY CONSIDERATIONS
• Plan ahead– Collaborate with the programmatic side of the organization– Lock in a stable leadership and management team– Understand academic and financial performance measure
• Watch the market– Keep an eye on rates and available products– Understand the real estate opportunities and challenges– Have realistic expectations
• Line up internal resources– Legal, financial and academic
• Prepare for the deal– Work with a partner or do the deal on your own?
oHave a beauty pageantoReferences and last three deals
Four key components
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PROJECT EXECUTION
Execution requires significant time
Plan Construct Design Acquire
Space Features Budget Timeline Charter
issues
Select firm(s) Design/build
options GC input Timing; big
bang or phased
Locate Site Acquisition Permitting Land prep
Move dirt Raise the
roof Control:
Project manager or owners rep
Fund
Cash Bank Bond Lease
Option
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Construction
PROJECT EXECUTION
Building is almost the easy part
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KEY CONSIDERATIONS
• Full-Service resource
– Selecting the right funding partner / structureo Bondo Loano Lease
– Commercial developer
– Architect
– General Contractor
– Design/build
• Flexible / Adaptive to your unique project
• Guarantor / Sponsor / Investor
• Provide access to working / growth capital
• Calculate total cost of ownership (now and later)
Choose a strong partner
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FUNDING OPTIONS
• New market tax credit (NMTC)
• CDFI
• EB-5
• Rural development funds
• Other
Other creative options
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FUTURE CONSIDERATIONS
• State/Federal credit enhancement
• Rating agency
• CMO v. individual school
• Refinance and expansion
• Long-term lease options
• Subsidized startup capital
Trends and observations
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Questions?
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Thank YouPresentation available at:
SlideShare.net/CharterSchoolCapital
Stuart [email protected]
877-272-1001
Chip [email protected]
619-906-5749