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Michael J. Schierl 10 Year Hence Objective Build a New Catholic Financial EcoSystem Catholic Dioceses/Foundations – Issue Catholic Conduit Bonds Mortgage.

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Presentation on theme: "Michael J. Schierl 10 Year Hence Objective Build a New Catholic Financial EcoSystem Catholic Dioceses/Foundations – Issue Catholic Conduit Bonds Mortgage."— Presentation transcript:


2 Michael J. Schierl

3 10 Year Hence Objective Build a New Catholic Financial EcoSystem Catholic Dioceses/Foundations – Issue Catholic Conduit Bonds Mortgage Bonds – Fund Parish Campus Expansion FlexEndowment Bonds – Endow as We Build Catholic Institutions/Endowments – Purchase “Catholic Impact” Bonds Parishioners – Become Balance Sheet Philanthropists Prove Scale: $1.0 Billion of new Funding in 10 Years Model: 25 Model “Marytown” Campuses @$40.0 Million Each  $10.0 Million – Church/School Building Improvement  $30.0 Million – Senior Care Facility 2

4 Mission Possible Mentality Our Lady – Nothing impossible with God (Lk: 1:37) The New Evangelization – John Paul II “Totus Tuus” St. Maximillian Kolbe – Militia Immaculata / Originator of “MaryTown” Concept Lessons: “Parable of the Talents” / “Five Loaf and Two Fish” / “Old Lady & the Coin” What is the Five Loaf and Two Fish of Today’s Catholic Church? 186 Dioceses – “Catholic Municipalities” with Public Bond Issuing Capability Land – Largest Landowner in World Interest Rates – Historically Low Levels 70M US Catholics –$9B Annual Donations to Parishes (7% give the Majority) Seniors -- Largest Generational Wealth Transfer in History over Next 20-30 Years -- Fixed Income / Assisted Living Needs (Virutally No Estate Giving) 3

5 Mission Possible Team 4 Bond Counsel Campaign Counsel Bond Placement Agent Bond Trustee Actuary Insurance Provider National Conduit Bond Issuer Diocesan Partners / Co-Developers Diocese of Phoenix Diocese of Lexington Archdiocese of Dubuque

6 Mission Possible Funding Paradigm Current Church Funding Paradigm “Send them Away” Scarcity Mentality Funding Need SolutionHowPriority / Duration OperationsShrink Mission to reduce Shortfalls Shrink Staff Sell Assets “Band-Aid” First Perpetual Capital - Church - School Reactive Campaign 5 Years Narrow Major Gift Arm-Twist Campaigns Second, Sporadic EndowmentDonor Initiated Cash Campaign “Add On” Third, If Ever Mission Possible Funding Paradigm “Five Loaf and Two Fish” Abundance Mentality WhatSolutionHowPriority / Duration EndowmentProactive Campaign 30 Years FlexEndowment Bonds* Broad-Based Estate Giving & Insurance First, Perpetual Capital - Church - School Proactive Campaign 30 Years Mortgage Bonds* Broad-Based Annual & Struct’d Giving Second, Perpetual OperationsExpand Campus to Grow and Fund Mission Outside Financing* (Senior Living) Right to Acquire Third, Next 10 Years

7 The Catholic Municipality Opportunity A Catholic Diocese is like a Civil Law “Municipality” Geographic Boundary / 186 US Dioceses Taxing Power 501(c)(3) Issuer Exemption / Issue “Public Bonds” at Low Cost Can Serve as Conduit Issuer for All Catholic Entities in Diocese Catholic Taxable Bonds Secured: Secured Bonds Defeat Tort Judgments in Bankruptcy Flexible: No Use of Proceeds Limitation (Capital, Endowment, Operations) Faithful: No requirements Contrary to the Catholic Faith Liquid: Private Bank Bonds; Public Bonds (Unrated or Rated) Abundant: Only limited by Project Debt Coverage Ratio / Loan-To-Value Donor-Friendly: Perfect “Structured Giving Inventory” 6

8 Mortgage Bond – Innovation The Conduit Mortgage Bond 7 Improvements: D&L Mortgage Bond Structure 75% of Capital from Outside Investors 400% Incr. in Lending Capacity 25% Jr. Bond Purchase – In Lieu of Guaranty Secured (Mortgage) Loan Liquidity / Standardized Loan Docs DCR & LTV Qualified Loans Trustee = Outsourced Loan Admin Jr. Bonds = Structured Giving Inventory Remaining Challenges: Parish Deposits – Still Bankruptcy Exposed Hard to Justify – Small or Shrinking Dioceses Sr. Bonds – Lost as Structured Giving Inventory Note Assignment Note Pmts Conduit Issuer (Diocesan 501c3 Entity) Parish Borrower Bond Trustee (Bond Expenses) Loan Diocesan D&L Mortgage Bond Bondholders Real Estate Mortgage Note Bond Proceeds Bond Pmts Jr. Mtg.Bonds 25% Sr. Mtg.Bonds 75% Buys Jr. Bonds Parish Depositors Deposit Claim

9 Mortgage Bond - Results Diocese of Phoenix Mtg. Bonds 8 CHURCH / SCHOOL / FUNDBOND TYPEPURPOSEAMOUNTBOND DATE St. Margaret Mary Parish Bullhead City Taxable Public Unrated New Church Building$3,725,000Dec. 15, 2009 St. Mary Magdalene Gilbert Taxable Public Unrated New Church Building$4,100,000May 15, 2010 St. Bernard Scottsdale Taxable Public Unrated Church Building Expansion$1,500,000Sept. 1, 2010 All Saints Mesa Taxable Public Unrated New Church Building$2,600,000Sept. 15, 2010 St. Columba Kim Mesa Taxable Public Unrated New Church Acquisition$1,360,000Oct. 1, 2010 St. Thomas Aquinas Avondale Taxable Public Unrated New Grade School Building$6,200,000Oct. 15, 2010 St. Clare Phoenix Taxable Public Unrated New Church Building$4,400,000Feb. 15, 2011 Roll-Up Bond #1 3 Parish Notes Taxable Public Unrated Refinance Three (3) Deposit & Loan Notes $2,240,000Nov. 29, 2011 Roll-Up Bond #2 4 Parish Notes & Property & Casualty Fund Note Taxable Public Unrated Refinance Five (5) Deposit & Loan Notes $8,750,000 June 1, 2012 (Scheduled) TOTAL - 9 BOND OFFERINGSTaxableChurch, School & Diocesan Entity$34,875,0002.5 Years

10 FlexEndowment Bond The FlexEndowment Campaign 9 Current Practice: Endowment “Campaigns” Typically a Disconnected Component of a Cash Campaign No Use of Structured Giving to finance Life Insurance Policies Narrow: Little Guy’s Left Out Individual Donor typically does not experience the fruit of his/her Gift. Improvement: The FlexEndowment Campaign Conducted Prior to or Simultaneous With a Capital Campaign Heavy Use of Structured Giving to fund Life Insurance. Broad: Everyone Can Participate Donor community experiences the Campaign commitments while alive. A FlexEndowment program can be built with parishioner/school supporters through the use of level-pay premium, whole-life insurance policies. If bonds are issued to pay premiums on the life policies, those bonds can become ideal “donor inventory” for charitable trusts that will benefit the parish/school through repayment of principal and/or interest on the bonds.

11 FlexEndowment Bonds Success Story: Cornerstone FlexEndowment 10 In 2010, Cornerstone Charitable Foundation (CCF) engaged Julius Capital to implement the FlexEndowment Program to support St. John the Baptist School (SJB) in Beloit, KS 142 Student Pre-K through High School Population 3,800 / School “System” Supported by Single Parish CCF had no Paid Personnel / No Donor Database / Virtually no annual fundraising As of 12/31/14 (Year 5), the CCF FlexEndowment consists of the following: $33.7 Million Death Benefit - 123 Policies (Avg. Insured Age 67) $8.85M - FlexEndowment Bonds Out (Most Recent Issue at 4.0% Fixed) $4.5 Million – Expected Grant Distributions over 31 years $17.2 Million - Expected Yr.31 Endowment (Bonds fully Repaid Yr.26) SJB on the verge of closing five years ago, now: 162 students 2014 - Raised over $900,000 / Over $350,000/year Projected thru Yr.31 2014/15 - 2 Time Defending Kansas State High School Scholars’ Bowl Champion 2014 HS Boys Basketball State Champion / 2014 HS Football #3 in State Looking to Expand Campus – Possible Site First “Marytown” Senior Living Facility

12 FlexEndowment Bonds How They Work –Interest Payments FlexEndowment Bonds Issued – Shelf Offerings (as needed). “Long” Balloon-Maturity, Interest-Only FlexEndowment Bonds (FE Bonds) are issued to finance life insurance premiums on “starting policy base.” The FlexEndowment Bonds are secured by the Policies and a Pledged Account which holds excess Bond Proceeds, pays permitted Campaign Expenses and receives all Policy Death Benefits, Donations and Estate Gifts. Interest Payments - Annual Giving/CLTs. Borrower pays FlexEndowment Bond interest, through (i) Annual Giving and (ii) the sale of newly issued FlexEndowment Bonds (from the shelf) into Charitable Lead Trusts (CLTs). Example: $100,000 25 Yr Bond @7.5% = $7,500/Yr of Interest In CLT, Donor donates the interest payments for a Term of Years (eg, 10 years), but the Donor receives the Bond back at CLT termination. Donation = $75,000 Shelf Bonds sold to CLTs with irrevocable “Bond interest donate-back” commitment can create “low-interest / interest-free” financing for a set period of years. 11

13 FlexEndowment Bonds How They Work – Principal Payments Principal Payments – Estate Giving/CRTs. Bond principal repaid through (i) Estate Gifts and (ii) the sale of FlexEndowment Bonds (from the shelf) to donors who establish a Charitable Remainder Trust (CRT). In CRT, Donor receives bond interest payments for Life or a Term of Years (eg, 10 years), but donates the Bond back to Charity at that time. Charity can retire the Bond or retain as “donor inventory” to sell again to another Donor CRT or CLT Shelf Bonds sold to CRTs with irrevocable “Bond principal donate-back” commitment create “true interest-only” financing with no principal repayment obligation. Life Policy Death Benefits. Policy Death Benefits repay any remaining Bond principal not repaid through Estate Gifts/CRTs. For example, the CCF/SJB FlexEndowment currently holds $33.7 Million of gross Policy D.Benefit. The Pro Forma projects that $17.1 remains in the FlexEndowment after all FlexEndowment Bonds repaid. 12

14 National Conduit Bonds Advantages Versus “Own Issuer Setup” 13 National Conduit Issuer Bonds – Advantages Attractive Vs. Setting Up “Own Issuer”  Fast (120 Days vs. 1–2 Years)  Issuance/Facility Fees vs. Six Figure Setup Cost  Easy to “Test” 1 Transaction Specialized / Sophisticated  Shelf Offering Capability  Turnkey Canon & Civil Law Compliant  Private Bank Bonds & Public CUSIP Bond  Mortgage & FlexEndowment Bonds Attractive to Institutional Bond Purchasers  “Known” Issuer = Better Paper / Liquidity  Geographic & Asset Class Diversification  Structure Reduces Local Diocese Bankruptcy Risk The Future – Specialized National Issuers  Cornerstone Charitable Foundation (KS)  Religious Order School Networks / ACE? Note Assignment Note Pmts Conduit Issuer Borrower (Parish) Bond Trustee (Bond Expenses) Loan National Conduit Issuer Bonds Bondholders Real Estate Mortgage & Pledge Note Bond Proceeds Bond Pmts Public CUSIP Bonds Private Bank Bonds Guaranty (if needed) Insurance Diocese (or 3 rd Party) Securities

15 National Conduit Bonds – Putting It All Together Mortgage Bonds and FlexEndowment Bonds 14 Mortgage Bonds. Sts. Peter and Paul School (SPPS), a Catholic Elementary School in the Diocese of Lexington, recently refinanced $11.0 million in bank mortgage debt originally incurred to renovate its school facility. In the refinancing, Cornerstone Charitable Foundation served as Conduit Issuer to issue Private Bonds (X- Bonds), which were purchased by a single Bank. In a Campaign being implemented with Julius Capital, SPPS will sell A-Bonds (from the shelf) under the same Master Indenture, as donor inventory to fund charitable trusts to benefit SPPS. SPPS annual fundraising will pay the interest on the bonds The A-Bonds will ultimately be repaid with the proceeds of estate gifts and the proceeds from these charitable trusts The Mortgage Bonds (X/A) are secured by a Mortgage on the School and Guaranteed by the Diocese of Lexington. FlexEndowment Bonds. SPPS is now in the second year of its FlexEndowment program, modelled on the CCF/SJB FlexEndowment. By June 30, 2015, SPPS expects to have 50 in-force policies with a total death benefit of $12.5 million and annual premium expense of $250,000. SPPS is now in the final planning stages to issue FlexEndowment Bonds secured by the Policies. The FlexEndowment Bonds will be issued under the same Master Indenture as the SPPS Mortgage Bonds and have a 2 nd priority interest in the Mortgage.

16 MaryTown Senior Care Facility “Add On” 15 Catholic Senior Living Add-On. Now working with a Partner to offer a Turnkey Senior Care Facility Campus Add-On Opportunity to the most worthy sites and communities. Womb to Tomb Catholic Community. Assisted Living, Memory Care and Health Care Coordination Volunteer, Staffing and Service Opportunities for School/Parish Project Cost & Financing. Avg. Project Cost: $30.0 - $35.0 Million 100% Outside Financing. Income Contribution to Parish/School Active Estate Giving Programs

17 Mission Possible Review 16 Pre-Conditions in Place: 25 MaryTowns = $1.0 Billion Conduit Mortgage Bonds. FlexEndowment Bonds. National Catholic Conduit Bond Issuer(s). Senior Care Campus Add-On. Thanks to Those Who Believed from the Start The New Catholic Financial Ecosystem: Welcome to Those Who Will Join Us to Make it a Reality. We Need You!

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