The Future of Charter School Facilities Funding
 

The Future of Charter School Facilities Funding

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Stuart Ellis (Charter School Capital), Sabrina Ayala (Green Dot Public Schools), and Dick Ward (Dougherty & Company, LLC) discuss the current and future trends for funding charter school facilities.

Stuart Ellis (Charter School Capital), Sabrina Ayala (Green Dot Public Schools), and Dick Ward (Dougherty & Company, LLC) discuss the current and future trends for funding charter school facilities.

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  • STUART – INTRODUCTIONS <br /> <br /> Sabrina Ayala is the Chief Financial Officer of Green Dot Public Schools. She has 10 years of experience working on Wall Street and received her MBA from the Kellogg School of Management. <br /> <br /> Richard Ward is the Senior Vice President of Dougherty & Company, and one of the pioneers of bond market access for the Public Charter School sector. Mr. Ward is known as a national leader in this arena, and his underwriting of the Community of Peace Academy is considered one of the first tax-exempt bonds in the country. <br /> <br />
  • Drop the line these images are students at schools we fund. 100% of what we do is figuring out how to help you better educate them
  • We should start with what we do… then talk about who we are. <br /> <br />
  • An investment has risk and other costs <br /> <br /> Rates are not the key factor: <br /> The same loan on two different condos with different HOA dues will cost you more or less <br /> Bond example with DSR and net – effective rate <br />
  • After you have decided: Control / Own, New / Existing and have good budget, funding the project is critical. <br /> <br /> There are short term and long term implications associated with each funding option <br /> <br /> Cost are more than just the rate! Having options and control should be a key goal. <br />
  • An investment has risk and other costs <br /> <br /> Rates are not the key factor: <br /> The same loan on two different condos with different HOA dues will cost you more or less <br /> Bond example with DSR and net – effective rate <br />
  • Sabrina - Security means what? Risk level??
  • Add column for NMTC and potentially CDFI?? Sabrina will talk about NMTC.
  • An investment has risk and other costs <br /> <br /> Rates are not the key factor: <br /> The same loan on two different condos with different HOA dues will cost you more or less <br /> Bond example with DSR and net – effective rate <br />
  • SABRINA
  • Condense slide with Sabrina’s slide – take out points for design/build <br /> Merging this with other slides <br /> Who will talk about design/build? Zoning issues – Sabrina has a real estate guy who could participate here?

The Future of Charter School Facilities Funding The Future of Charter School Facilities Funding Presentation Transcript

  • Copyright © 2014 Charter School Capital, Inc. The Future of Charter School Facilities Funding 6/30/14 National Charter Schools Conference Las Vegas
  • Copyright © 2014 Charter School Capital, Inc. 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
  • 4 Copyright © 2014 Charter School Capital, Inc. 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
  • 6 Copyright © 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
  • 7 Copyright © 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 $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
  • 8 Copyright © 2014 Charter School Capital, Inc. 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 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
  • 10 Copyright © 2014 Charter School Capital, Inc. 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
  • 11 Copyright © 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
  • 12 Copyright © 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 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.
  • 13 Copyright © 2014 Charter School Capital, Inc. 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
  • 14 Copyright © 2014 Charter School Capital, Inc. 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
  • 15 Copyright © 2014 Charter School Capital, Inc. 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
  • 16 Copyright © 2014 Charter School Capital, Inc. Green Dot Transactions • Lease option • State bond • CDFI • Private bond • Cash Options expand as organizational maturity increases
  • Copyright © 2014 Charter School Capital, Inc. Funding Approval and Execution
  • 18 Copyright © 2014 Charter School Capital, Inc. 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
  • 19 Copyright © 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 or do the deal on your own? o Have a beauty pageant o References and last three deals Four key components
  • 20 Copyright © 2014 Charter School Capital, Inc. PROJECT EXECUTION Execution requires significant time Plan ConstructDesignAcquire !  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
  • 21 Copyright © 2014 Charter School Capital, Inc. Constructi on PROJECT EXECUTION Building is almost the easy part
  • 22 Copyright © 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 – 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
  • 23 Copyright © 2014 Charter School Capital, Inc. FUNDING OPTIONS •  New market tax credit (NMTC) •  CDFI •  EB-5 •  Rural development funds •  Other Other creative options
  • 24 Copyright © 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
  • 25 Copyright © 2014 Charter School Capital, Inc. Questions?
  • 26 Copyright © 2014 Charter School Capital, Inc. Thank You Presentation available at: SlideShare.net/CharterSchoolCapital Sabrina Ayala sayala@greendot.org Dick Ward dward@doughertymarkets.com Stuart Ellis sellis@charterschoolcapital.org 877-272-1001