what you need to know about charter school facilities funding - charter school capital
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Copyright © 2014 Charter School Capital, Inc.
What You Need
to Know About
Charter School
Facilities
Funding
California Charter
Schools Conference
March 18, 2015
Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
Welcome
3Copyright © 2014 Charter School Capital, Inc.
WELCOME
• Larry Rieder, President, Charter School Property Solutions
• Stuart Ellis, President and CEO, Charter School Capital
Presentation available at:
SlideShare.net/CharterSchoolCapital
Panelists
4Copyright © 2014 Charter School Capital, Inc.
FACILITIES FUNDING
• 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 we will cover
Copyright © 2014Charter School Capital, Inc.
Focused on Charter Schools
6Copyright © 2014 Charter School Capital, Inc.
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
7Copyright © 2014 Charter School Capital, Inc.
WHO WE ARE
• Specialty finance company empowering charter school growth
• Headquartered in Portland, Oregon
• Began funding charter schools in California in 2007
• Over $800M of funding provided to date
• Team of 40+ professionals dedicated to delivering timely and flexible solutions
• Relationships with over 450+ charter schools serving 450,000 students
100% dedicated to charter schools
8Copyright © 2014 Charter School Capital, Inc.
WHERE WE ARE
400
5
519,000
1,130
184,400
605
44,100
149
253,245
280239,996
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
14554,906
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
7116,137
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
TB
D
31
21,397
52
35,000
57
Copyright © 2014 Charter School Capital, Inc.
Facilities Funding Structures
10Copyright © 2014 Charter School Capital, Inc.
CONSIDERATIONS
• Ownership is an investment
• Control is critical to maintain stability or growth and financial predictability
• Evaluate total dollars spent not percentage rates
• Cost is not just money, but time and opportunity
What to consider in a financing structure
11Copyright © 2014 Charter School Capital, Inc.
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
12Copyright © 2014 Charter School Capital, Inc.
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
Debt coverage
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
10 yr minimum
Refinance risk
Covenants
Scalable,
expandable
Considerations/Challe
nges
Reserves? 20+/- 40% equity
5-20yr term and
amortization
100% financing
Transaction costs
“Road show”
100% financing
No amortization
Buy Back
Note: $7 million project example; bank assumptions 6-8% interest on debt, 30-40% equity, 10-20yr amortization; bond assumptions 6-9%
interest rate, 18% transaction cost/additional financing, 30yr amortization; lease options assumptions 100% financing, 9-10% cap rate.
13Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
BOND REQUIREMENTS
• Pledge of state funding assigned to trustee
• Fully funded debt service reserve
• First mortgage collateral
• Level annual debt service amortization
• Liquidity covenant 30-45 days cash on hand
• Debt service ration covenant of 1.10x
• Debt service default covenant of 1.0x
• Capital improvement reserve funding
14Copyright © 2014 Charter School Capital, Inc.
EXAMPLE - 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
15Copyright © 2014 Charter School Capital, Inc.
EXAMPLE - 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
16Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
OTHER OPTIONS
• Lease option
• State bond
• CDFI
• Private bond
• Cash
Options expand as organization matures
Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
Funding Approval and Execution
18Copyright © 2014 Charter School Capital, Inc.
PASSING THE TEST
• Enrollment
– Stable or increasing enrollment
– Strong demand – waiting list, expanding grades, market growth
• School / Leadership History
– Experienced leadership team with proven track record
– 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
• Governance issues
– Authorizer relationship
– Operational excellence and adherence to internal controls
Funding structure requirements
19Copyright © 2014 Charter School Capital, Inc.
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
– Charter school experience
– Line up your financing ahead of time
Four key components
20Copyright © 2014 Charter School Capital, Inc.
PROJECT EXECUTION
Execution requires significant time
Plan ConstructDesignAcquire
Space
Programming
Features
Budget
Timeline
Charter
issues
approvals
Select team
Design/build
options
GC bidding
Bldg. permit
Timing; big
bang or
phased
Locate Site
Acquisition
Use Permit
Land prep
Move dirt
Raise the
roof
Control:
Project
manager or
owners rep
Fund
Cash
Bank
Bond
Lease
Option
21Copyright © 2014 Charter School Capital, Inc.
Construct
ion
PROJECT EXECUTION
Building is almost the easy part
22Copyright © 2014 Charter School Capital, Inc.
KEY CONSIDERATIONS
• Full-Service resource
– Selecting the right funding partner / structure
o Bond
o Loan
o Lease
– Commercial developer
– Architect
– General Contractor
• 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
23Copyright © 2014 Charter School Capital, Inc.
FUNDING OPTIONS
• New market tax credits (NMTC)
• CDFI
• EB-5
• USDA (rural development funds)
• Other
Other creative options
24Copyright © 2014 Charter School Capital, Inc.
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
Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
Questions?
26Copyright © 2014 Charter School Capital, Inc.
Thank YouPresentation available at:
SlideShare.net/CharterSchoolCapital
Stuart Ellis
877-272-1001
Larry Rieder
310-993-1100