facilities financing for ca charter schools

Copyright © 2014 Charter School Capital, Inc.

Facilities Financing for

CA Charter Schools

Webinar

9/30/14


Welcome

3Copyright © 2014 Charter School Capital, Inc.

WELCOME

• Chip Eady, Attorney, Procopio, Cory, Harsgreaves & Savitch

• Stuart Ellis, President and CEO, Charter School Capital

Panelists


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


Facilities Funding Structures


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


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


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.


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


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


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


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


BOND READINESS

• Adopt an official intent resolution

• This will aid in keeping future options open

Official intent resolutions


Funding Approval and Execution


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


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


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


Construction

PROJECT EXECUTION

Building is almost the easy part


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


FUNDING OPTIONS

• New market tax credit (NMTC)

• CDFI

• EB-5

• Rural development funds

• Other

Other creative options


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


Questions?


Thank YouPresentation available at:

SlideShare.net/CharterSchoolCapital

Stuart [email protected]

877-272-1001

Chip [email protected]

619-906-5749

facilities financing for ca charter schools

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