Charter School Facility Financing Considerations

September 9, 2015

Lenders to Charter Schools

Tax-Exempt Bond Investors

Commercial Banks – Conventional or Taxable Bank Debt

Community Development Financial Institutions– Lenders Include: Nonprofit Finance Fund and The

Reinvestment Fund

New Market Tax-credit Investors – Representative Investor: Wells Fargo Bank

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Key Business Considerations of Facility FinanceMaturity of Financing

Loan-to-Value Requirement– Percent of the Value of Assets Financed

Ability to Pre-pay

Eligibility Requirements– Location of Facility or Population Served

Cost of Capital– Proposed Debt Service as a % of Operating Budget

Covenants

Execution Timing3

Challenges to Facility Financing:Perceived Risks by Some Lenders

Potential for Charter Revocation

Charter School Authorizer is the School District of Philadelphia

– Perceived as Potential Competitor for Students

Funding for Facilities is not Provided to Charter Schools in PA

Primary Revenues Dependent on Enrollment– Versus Local School Districts with Taxing Authority

Limited Institutional Equity for Real Estate Projects

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Credit Considerations

Market Position– Student Demand

• Stable or Increasing Student Enrollment• Student Retention• Documented Waiting List

– Academic Program• Trend of Student Test Scores

– Demographics of Enrollment Area• Population Growth• Competition From Local Public Schools, Other Charter Schools and

Private Schools

Charter – Term– Renewal History

Management and Administration– Depth of Expertise

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Credit Considerations

Debt Management– Debt Service Less Than 20% of Operating Expenses– Other Planned Capital Expenditures

Financial Management– Operating History

• Stable Per-Pupil Funding• Demonstration of Positive Operations Over a Three Year

Period– Stable or Increasing Fund Balance

• Minimum Balance of 5% of Operating Expenses– Financial Flexibility

• Ability to Reduce Budget, if Necessary• Endowment or Fundraising Program

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