the future of charter school facilities funding

Copyright © 2014 Charter School Capital, Inc.

The Future of Charter School

Facilities Funding

6/30/14 National Charter

Schools Conference Las Vegas


Welcome

3 Copyright © 2014 Charter School Capital, Inc.

WELCOME

•  Sabrina Ayala, CFO, Green Dot Public Schools

•  Dick Ward, Senior Vice President, Dougherty & Company, LLC

•  Stuart Ellis, President and CEO, Charter School Capital

Panelists


FACILITIES

• Understanding and choosing a funding structure

• Balancing facilities dreams and budget realities

• Funding approval - keys areas of focus

• Project execution and timing

• Other considerations and best practices

• What does the future hold?

What we will cover today

Copyright © 2014Charter School Capital, Inc.

Focused on Charter Schools


WHAT WE DO

•  Working and growth capital

– Attendance-based funding

– Receivables purchase model

•  Facilities financing

– Expansion and new development

– Relocation and refinancing

– Newly funded $500 million capital pool

•  Resource development

– Matching clients with grant, entitlement and philanthropic funds

Provide charter schools access to funding


WHO WE ARE

•  Specialty finance company empowering charter school growth

•  Headquartered in Portland, Oregon

•  Began funding charter schools in California in 2007

•  Over $700M of funding provided to date

•  Team of 40+ professionals dedicated to delivering timely and flexible solutions

•  Relationships with over 400 charter schools serving 400,000 students

•  Stellar track record with schools and investors

100% dedicated to charter schools


WHERE WE ARE

400 5

519,000 1,130

184,400 605

44,100 149

253,245 280 239,996

625

141,204 297

119,533 400

130,842 176

Current Clients – Working Capital + Facilities

# Students # Schools

99,328 197

91,813 233

69,392 110

58,933 127

63,175 145

54,906 95

58,691 117

47,689 245

35,353 81

31,743 87

34,347 75

29,718 124

19,439 38

22,384 59

19,409 47

21,911 95

26,022 34

16,051 39

10,370 21

10,398 33

15,533 71 16,137

25

2,446 11

7,131 18

2,133 19

725 6

315 3

382 4

5,980 27

6,215 19

Anticipated Working Capital 2014

Facilities Only

TBD 31

21,397 52

35,000 57


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 yrs Surplus Assets + Revenue

Min 3 yrs Surplus Rating?

No minimum Academic success Flexible

Security Interest None Real estate + all assets

Real estate + all assets

None

Growth Options Cash = Build Refinance risk Rate risk

Refinance risk Covenants

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 Bond Traditional Bank Lease 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 Bond Traditional Bank Lease Option


Green Dot Transactions

• Lease option

• State bond

• CDFI

• Private bond

• Cash

Options expand as organizational maturity increases


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 performance – Plan financial performance measures

•  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?

o Have a beauty pageant o References 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 / structure

o  Bond o  Loan o  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 You Presentation available at: SlideShare.net/CharterSchoolCapital Sabrina Ayala [email protected]

Dick Ward [email protected]

Stuart Ellis [email protected] 877-272-1001

the future of charter school facilities funding

Education

charter school growth

funding charter schools

charter schools access

hypothetical school

anticipated working

growth options cash

facilities funding structures

days cash