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DEBT FINANCING OPTIONS FORREFINANCING OR CAPITAL PROJECTS
CALIFORNIA ASSOCIATION OF INDEPENDENT SCHOOLSJANUARY 23, 2010
Presented By: Steven J. Stogel
In Participation With: Deborah RichmanHead of The Turning Point School
Dated: January 23, 2010
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Turning Point School – Phase I8780 National Boulevard
Culver City, CA 2
•Site Plan of Phase I (2.0 acres) and Phase II (1.8 acres)•Increased enrollment capacity from 350 ± to 480!
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PHASE II PHASE I
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Phase II – Existing Condition
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Interior of Phase II – As-Is
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New Phase II Site Plan
7New Lobby
8Phase II Schematic
9New Auditorium & Theater
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Phase II Multi-Media Room
Phase II Project and Financing:
Original (2006) Estimated ConstructionCosts (2012 start) $10,000.000
Original Estimated “Total DevelopmentCosts” including A&E, title, legal, insurance and other costs $15,000,000
Actual 2009 Construction Costs, all in $ 7,700,000
Actual Total Development Costs $11,500,000
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Tax Exempt Debt Terminology:
Unenhanced
Enhanced (Letter of Credit (“L.C.”))
Fixed
Floating – LIBOR and SIFMA Index
Section 501(c)(3)
Section 145 – Bank Qualified Bonds (“BQBs”)
Issuer
Term of Bonds
Terms of Enhancement/Balloon Date
Prepayment Lock-out/Yield Maintenance
Project Financing
Pledge Financing
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FORMAT OF TAX EXEMPT BONDS
501(C)(3) BQBs
Issue: Qualifying Agency Qualifying Agency
Trustee: Bank/Custodian Bank/Custodian
Offering: Public Direct to Bank
Securities Law: Yes No
Legal & Other Costs: 2-4% 1.5-3%
L. C. Bank: Rating of L.C. Bank is Key Determined by Bank
Unenhanced: Rating/Condition of School is Key Determined By Bank
Interest Mode: Fixed/Floating Fixed/Floating
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http://www.sifma.org/
SECURITY INDUSTRY AND FINANCIAL MARKETS ASSOCIATION
“SIFMA” INDEX
ORIGINAL TURNING POINT PHASE I FINANCING
Issue Date: 2001
Original Issue: $12,000,000
Issuer: California State-Wide Community Agency
IRC Code Authorization: Section 501(c)(3)
Form: Unenhanced
Interest Rate: 6.5%
Term: 30 year, self amortizing
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Issue Date: September 19, 2009
Amount: $11,370,000
Issuer: California Municipal Finance Authority
IRC Code: BQBs
Form: Enhanced with a US Bank Letter of Credit
Annual Floating Rate: 13 b.p. (1/13/10)
Annual L.C. Costs 200 b.p.
CAP Purchase: 400 b.p.
Amortization: Level 30 year schedule (after 16 month interest only period)
Term of L. C. 10 years
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CURRENT TURNING POINT PHASE I REFINANCING
Issue Date: September 19, 2009
Amount: $6,865,000 (New Construction)
Issuer: California Municipal Finance Authority
IRC Code: BQBs
Form: Enhanced with a US Bank Letter of Credit
Annual Floating Rate: 13 b.p. (1/13/10)
Annual L.C. Fee 200 b.p.
CAP Purchase: 400 b.p.
Amortization: Level 30 year schedule (after 16 month interest only period)
Term of L. C. 10 years
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CURRENT TURNING POINT PHASE II FINANCING
TOTAL COST OF PERMANENT FINANCINGPHASE I AND PHASE II
Phase I Phase I & II **2001 Series * 2009 Series
Annual Cost $975,000 $ 940,000
$ 385,000 Interest, L.C. Fee and Other 535,000 2011 Principal 25,000 CAP Cost @ $25,000$ 940,000
* Original Phase I debt was $12,000,000.** Based on $15,000,000 balance, as of 1/1/11, net of programmed reductions of principal.
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SPECIAL RULES FOR BANK QUALIFIED BONDS (“BQBs”)
General Rule for Acquiring/Carrying Tax Exempt Debt
1986 “Rules” under TRA of 1986
$10,000,000 limit per City (including City and non-profits!) Interest non-AMT 80% interest deduction 2% test for Banks as Purchaser
2009 Rules under the American Recovery & Reinvestment Act (the Obama Stimulus Bill)
$30,000,000 limit per City and per every (c)(3) non-profit Interest non-AMT 100% interest deduction Expand 2% test for Banks
BQBs can be issued only until December 31, 2010
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BANK UNDERWRITING CONSIDERATIONS IN L. C. FORM OR BQB
Term of Bonds Term of Enhancement Financial Statement of School Cash Flow Consistency Enrollment History Who is on the Board of Directors Annual Giving Percentage of Scholarship Support Prior Capital Campaigns Endowment Real Estate Appraisal Tests
Real Estate Value-As-Is Going Concern as a School
Recourse School Assets Negative Pledge
Financial Covenants No Material Adverse Change Liquidity Covenant
Relationship (Prior & Future) with Bank Time Lines Conventional Loan Alternative
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INTEREST RATES RANGES(1/11/10)
SECTION 501(c)(3)
Unenhanced L. C. Floating L. C. Fixed 5 yrs. L. C. Fixed 10 yrs.
6.5% SIFMA Index 3.75% ± 4.5% ±+ 2.00 - 2.25%L.C. Fee & Other = 2.25 - 2.75%
BQBs
Unenhanced Floating 5 Year 10 Year
N/A 67% of 30 day 3.25% ± 4% ±LIBOR + 160– 200 b.p. “spread” = 1.75% to 2.25%
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BOARD CONSIDERATION IN USE OF DEBT
Refinancing to Lower Costs
New Debt to Build Costs of Construction Today! Impact on Enrollment – A Positive!
Effects on Fund Raising For Construction of Capital Projects Pre Construction Start: Easiest for both restricted or unrestricted gifts During Construction: Well received as new construction is tangible and present Post Completion of Construction – hardest, but multi-year (even up to 7 years!) pledges from “Day 1” are readily incorporated into Financing Model
Long After Completion of Construction Next “Phase” Story Debt Retirement Enrollment Strategy
Each School’s Story is Unique
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