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Innovations in Financing

Creating a Continuum of Financing Options for

Education

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Welcome to IFF

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Agenda

I. IFF Overview

II. Challenges to Charter School

Finance

III. Creating a Continuum of Charter

School Finance

IV. Charter Financing in the Current

Climate

V. Q & A

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IFF OverviewNonprofit CDFI provider for below-market real estate and equipment loans and real estate consulting for nonprofit sectors serving low-income and special needs communities

• $145 million total assets • $115 million loans receivable• $2 million annual consulting fee revenues• Closed 680 loans totaling over $225 million to

agencies serving over 1.3 million people• Developed over 1 million sqft. of community

facilities• Serve Illinois, Indiana, Iowa, Missouri and Wisconsin• 2008 Wachovia NEXT Award for Opportunity

Finance

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Lending • Direct lending up to $1.5 million• Financial packaging of bank debt and

IFF loans• Credit enhancement of bond financing

for projects over $5 million

59 loans totaling $23+ million; 9 campuses bond financed totaling $49 million; packaging of $125 million

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Real Estate Services

• Project Feasibility Analysis• Facilities Planning Services • Project Pre-Development • Project Management• Real Estate Development

Consulted on 38 different campus projects, including development of 13 campuses; total of 6,700 new students

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Public Policy and Research• Consultant to

Chicago Public Schools• Authorizing review• Facilities consulting• Strategic advice

• Needs Assessment Research

• Advocacy

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Challenges in Financing Charter Schools

• Often start-up organizations

• Limited charter terms

• Best practices call for ramp up model

• Fundraising

• Little equity

• Loan to value problems

• Inexperience in development

• Timing development and financing

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Financing Throughout School Development

IFF LoansNew Schools

Pooled BondsEstablished Charters participate in pooled bonds to demonstrate

successful track record.

Stand-AloneMore established charters participate in stand-alone

bonds.

Non Credit EnhancedAfter 10 years in Stand-alone Bond Program or 2 charter renewals, schools enter into non-

credit enhanced bond financing.

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Charter School Capital Program

IFF Loans

• Projects from $10,000 to $1.5 million

• 5% fixed rate financing

• Terms up to 15 yrs.• Financing for start-up,

pre-development, equipment, acquisition, renovation, new construction, on leased and owned space

59 loans to 28 schools totaling

$23+ million

Real Estate Services*

• Assistance with every

stage• Site selection• Facilities assessment• Space planning• Project budgeting• Project management

Completed 25+ consulting &

development projects

*in certain markets

Bond Financingwith $18 million U.S.

Dept of Education grants

• Projects over $1 million

• Low, tax-exempt, investment grade rates

• Terms up to 30 years• Credit enhanced for

public market access• Leased or owned

spaces• 100% financing

Sponsored $49 million for 9 campuses (new

& existing)

CONTINUUM OF SERVCIES

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Features of IFF Charter School Loans

• Start up schools are eligible

• Financing available for leasehold improvements

• Gap financing provided

• Will subordinate to commercial banks

• Loan term NOT tied to charter term

• Only 5% equity requirement

• No Fees, points or prepayment penalties

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ACT Charter School, Inc., Chicago

Loan Purpose

$545,055 1997: 15-year loan to purchase/rehab building from Archdiocese for new school

$82,000 1997: 5-year loan to furnish offices and classrooms

$100,000 1999: 5-year loan to renovate vacated tenant space for six new classrooms

$200,000

$1,000,000

2003: 15-year loan to repay ACT operations for past improvements; restructure IFF debt

2008: 15 year loan for needed repairs on the building and restructuring of IFF debt; partnered with another CDFI

IFF partnered with ACT since its inception, helping ACT grow even during years of fiscal challenges.

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CSCP Bond Program Goals

Capital Market Access• $18 million Credit Enhancement as Debt Service Reserve

Fund• Lower risk of charter school by providing additional liquidity • Secure long term, low, tax exempt rates • Finance long-term facility leases and purchases• Simple covenants

Leverage• Over $300 million in capital

Impact• 39 schools created in Illinois, Missouri, Wisconsin and

Indiana• 19,500 students served (with 75% students qualifying for

free and reduced lunch• Result in approximately 2 million square feet developed

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Financing Features: Tax Exempt Bonds

• Credit Enhancement: • Up to 10% of par amount of bonds• Debt service reserve fund • Provides additional liquidity

• 100% project financing available• For projects from $1 million - $???• Available for leasehold improvements • Fixed rate• Level debt service• Capitalized interest available• IFF facilitated; experienced team;

standardized documents; simple covenants

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IFF’s Role as a Sponsor

A Market Leader:• Creating access to affordable capital

• Able to leverage real estate experience and relationships

• Highly committed to doing whatever it takes• Providing construction loan capital

• Monitoring construction

• Moving transaction to closing

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Representative Loan & Bond Transaction

Noble Network of Charter Schools

• Four expansion campuses for 2007 and 2008 school years

• IFF RES identified all sites and managed development projects

• Two IFF pre-development loans = $5 million

• Two IFF loans for acquisition and lease build-out = $2 million

• Two bond issues permanent financing = $25 million

• Both received “A” rating

• Each just under 6% fixed interest rate for 25 years

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Charter School Financing in Current Climate

• Bond markets have seized up

• Banks extremely cautious

around both collateral and

exposure

• CDFIs needed to reduce

exposure and credit enhance

private debt

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IFF’s Role• Design financing structure particular to each

school

• If applicable, introduce to and partner with banks

• Provide experienced team, standardized documents, negotiated lower fees, etc.

• Facilitate process and move to closing

• Highly committed to doing whatever it takes• Provide construction and predevelopment loans

• Increase IFF subordinated debt

• Increase credit enhancement

• Provide monitoring

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Private Placement Bonds• Namaste Charter School

• 5 year old elementary school in need of space to accommodate growing enrollment

• $7.5 million addition onto leased property• IFF secured $4,000,000 in privately placed

bonds • IFF provided credit enhancement equal to

10% of bank’s loan in debt service reserve fund

• IFF increased direct loan to $2.5 million• Bank additionally provided bridge loan to

ensure construction continued to meet schedule

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Bank Debt

• Chicago Math and Science Academy• 5 year old middle/high school in need of

additional space for growing enrollment and to increase capacity to serve more students

• $11 million acquisition and renovation of former retail space

• IFF secured $5,000,000 private bank loan• IFF provided credit enhancement equal to

10% of bank loan in debt reserve fund• IFF increased direct loan to $5,000,000• IFF provided $400,000 5-year FFE loan

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New Markets Tax Credits• Comer Science and Education

Foundation• $21 million new construction high school

campus to be operated and leased by established Noble Network Charter Schools

• IFF secured leveraged loan in amount of $8 million and equity investor

• IFF provided credit enhancement equal to 10% of loan in debt service reserve fund

• Credit enhancement lowered interest rate charged and enabled bank to accept interest only payments during credit period

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Resources from IFF

IFF web site (www.iff.org)

• Technical assistance worksheets

• Publications and research reports

• Regional and Missouri eNewsletters

• New products and services for nonprofits

• New technical assistance resources

• New publications and research reports

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Contacts

Jill LevineDirector of School Services(312) 596-5108jlevine@iff.org

Michelle GleasonProgram Associate – Charter

Schools(312) 596-5113mgleason@iff.org

Joe NeriExecutive Vice President(312) 596-5104jneri@iff.org

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