1 FINANCING SCHOOL FACILITIES Presented by: Richard Moreno, Executive Director CSSC – Building Hope (954) or (954) Panelists: Bill Brooks – Mayor – City of Belle Isle charter School Chuck West – Chairman, Central Charter School Jane Ellis – Self-Help

 Objectives  To communicate the importance of the assessment process  To clarify the steps involved in needs assessment  To enable participants to make the various calculations and fill out worksheets relevant to needs assessment  An estimate of the school’s physical requirements  Be Flexible  Set short and long term goals

 Number of students  Class size estimation  Number of subjects  Number of classrooms  Curriculum-specific classrooms

 Corporate Governance  Financial Characteristics  School Characteristics  Red Flags

 A functional relationship between the Authorizer  Board of Directors  Administration  Well defined roles and responsibilities of Board & Administration including a succession plan  Strong financial controls and audit procedures in place to ensure financial oversight

 Demonstrated ability to operate within FEFP funds to cover expenses and generate sufficient cash flow  Debt service < 18% to 20% of total operating budget with at least 5% of operating expenses in cash  A realistic 5 year pro-forma demonstrating sufficient cash flow from per pupil revenues for debt repayment

 Minimum 3 years of operation with enrollment of 300 students or more with a strong waiting list  Strong academic performance as indicated on standardized test scores  One successful charter renewal from authorizer along with positive enrollment trends

 High staff / Board / student turnover  Poor academic and financial performance that leads to tension between school and authorizer  Lack of a clear succession plan for Board and Administration  Lack of Board or Administration understanding of the process of purchasing a facility and the various complexities of a real estate transaction (i.e. appraisals, bidding of construction, zoning requirements, environmental issues, etc…)

 Traditional Bank  Tax exempt bond Issue  Community Development Financial Institution (CDFI)  New Markets Tax Credit  Real Estate Investment Trust

 Loan to Value an important consideration  20 to 25 year amortization  3 to 7 years loan term  Fixed or Variable Interest Rate  10% to 30% equity required

 Higher Loan to Value than traditional lenders  Generally focused on underserved communities  Have dedicated Charter School Lenders  More competitive loan pricing

 Higher Loan to Value than traditional lenders or CDFI’s  Focused on underserved communities that qualify as highly distressed  Have dedicated Charter School Focus  Partial loan forgiveness depending on structure  Seven year term

 Amortizations of up to 30 + years  No need for an equity contribution  Fixed rates available  Interest rates can be fixed for 30 years  Best suited for long-term needs  No prepayment penalties  100% + financing available Tax Exempt Bank Loan Tax Exempt Bond Issue  Amortizations of up to 20 years  Fixed and variable rates available  Suited for short to intermediate term needs  Cost of issuance is lower  More cost effective for smaller loans  Need must be $6.0 million or greater  IRS restrictions on use of bond proceeds  Cost of issuance is higher  Viewed on a (80/20) Loan to Value (LTV)  Loan rate often reprices in 5 or 10 years  Balloon payments need to be refinanced  Requires an equity contribution  Prepayment penalties can be costly Pros Cons

Charter Schools enjoy the benefit of tax-advantaged borrowing through the use of tax-exempt bonds. In the typical tax-exempt bond transaction, a conduit governmental agency issues bonds carrying interest rates below those of taxable bonds on behalf of the charter school.

Upon issuance, the bonds are purchased by an underwriter and sold to institutional investors, the general public, or both. The conduit agency simultaneously lends the proceeds to the charter school at repayment terms specified in the loan agreement and the bond indenture.

Charter Schools have the option to issue bonds based on their own credit merit. When accessing the public market, investors will rely on the rating provided by Moody’s, Standard & Poor’s or Fitch to determine the appropriate cost of capital rates. If the Charter School is unable to achieve an Investment Grade designation, interest rates are likely to be higher as the universe of investors shrinks. In either case, investors will require financial covenants, collateral, and/or monies set aside in the case the borrower is unable to make a scheduled payment. Any combination of the above may be required at the time of financing based on the market conditions.

Construction Costs Eligible project Construction Site acquisition and testing Equipment Architect Financing Costs Legal fees Underwriter’s discount Printing fees Trustee fees Credit rating fee Capitalized Interest Conduit issuer related fees - REFINANCING OF EXISTING DEBT - Typically funded through bond proceeds, equity or the interest earned on bond proceeds

 No equity required  Possible need for Credit Enhancement  Provide turn key facility solutions  20 to 30 year lease term  Annual rent increases  Opportunity for purchase option

20 FINANCING SCHOOL FACILITIES Presented by: Richard Moreno, Executive Director CSSC – Building Hope (954) or (954) Panelists: Bill Brooks – Mayor– City of Belle Isle charter School Chuck West – Chairman, Central Charter School Jane Ellis – Self-Help