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Providence Financial












MONTHLY NEWSLETTER:  DECEMBER 2007 ISSUE

A TALE OF TWO CHARTER SCHOOL BOND OFFERINGS
“THE DEVIL IS IN THE DETAILS!”
BY BRENT VAN ALFEN
PROVIDENCE FINANCIAL CO., INC.


Recently, two very similar charter schools completed their tax-exempt bond financing for a new facility in the same week. These schools are in nearby locations, and the financings were about the same size. When comparing the two financings, it is interesting to note that “School A” achieved significantly better terms than “School B” in the following ways:

• School A achieved a lower interest rate than School B, resulting in lower financing costs for School A over the term of the financing. This means more funds for School A to educate kids. Advantage: School A.

• School B cannot issue any additional parity debt without first obtaining current bondholder approval. We see many schools that decide to expand or open an additional campus after their first financing; this will be difficult for School B because of this restriction. The existing bondholders will not have much motivation to allow them to incur additional debt. School A does not have this restriction; they must merely meet certain prudent debt ratios to obtain additional long-term parity debt. School A will have this important flexibility if they decide to grow in the future. Advantage: School A.

• School B’s financing requires the school to get rated by a rating agency in the future at the request of the bond holders. This requires a significant amount of time and effort by the school. This requirement potentially will significantly benefit the bond holders but will not benefit the school at all. It will also be a significant expense for School B. School A has no such requirement. Advantage: School A.

• The term during which the schools are precluded from refinancing their debt without penalty is two years shorter for School A than School B. Advantage: School A.

Why did School A achieve better terms than School B? It is because School A is a client of Providence Financial and School B is not. We assemble a group of professionals that results in the best terms possible for our clients. We work for our clients. We negotiate for our clients. We know how to get them the best terms. We save schools money, and we save school management work.

Finding the right match between the lender/underwriter and your school’s unique needs is our priority.

There are scores of lenders and underwriters who will gladly finance your facility. Certainly, some are better than others. Each of them has different strengths and weaknesses and none of them carry all of the programs that are available in the market. Finding the right match between the lender/underwriter and your school’s unique needs is our priority.

There is no shortage of attorneys in any city who would be glad to assist a charter school with their financing, but which ones are the right fit for your school in getting the terms and conditions that will be the most benefit for your situation? Again, sorting through the available candidates to see which ones have the best and most relevant experience is our priority.

There are myriads of other professionals such as real estate brokers, mortgage brokers, and accountants who will gladly offer advice and services but their experience may not include financing that is specifically related to charter schools. Charter school financing is unique. It is not like any other financing either in the commercial or municipal finance markets. Be careful from whom you get your advice.

A key to our business model is that through our experience of being involved in over 30 charter school financings, we can structure financings and select the right professionals to achieve the most economical result with the most favorable terms possible. We have various finance products available, depending on the unique situation of a school, for financings as low as $2 million and no limit on the high side. We would be happy to help you evaluate financing solutions for your school. There is no charge or obligation for an initial consultation

For information contact Rick Van Alfen, Providence Financial Co., Inc.
Phone: 801-556-2290
Email: rick@providencefinancialco.com