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Providence Financial












MONTHLY NEWSLETTER:  APRIL 2008 ISSUE

WHEN THE GOING GETS TOUGH… BY BRENT VAN ALFEN, CPA
PROVIDENCE FINANCIAL CO., INC.



Unless you have been living on Mars, you are aware that there are significant problems in the US financial markets. I have been asked many times in the last several weeks if this is affecting the markets for tax-exempt charter school bonds. It has affected rates fairly dramatically. Good charter schools can still get bond financing, but the interest rates are about 1% to 1.5% higher than they were last year. Today, a tax-exempt charter school bond that is rated at the lowest investment grade will price at about 6.5%, and an unrated bond will price at about 7.25% to 7.75% or thereabouts. Most investors and bankers are saying these rates may be here for a while and that last year’s low rates may have been an unusual circumstance where there was exceptionally high liquidity in the market. Only time will tell, but the important point to keep in mind is that tax-exempt bond financing is not the only game in town. Depending on markets and a variety of other circumstances, there may be a number of other opportunities to finance charter facilities. A few of them are as follows:

Taxable rate bonds: In today’s markets, some taxable rates are about as attractive as tax-exempt rates. This results in an opportunity to do a taxable bond at a similar rate as a tax-exempt bond, and you don’t have the high up-front legal costs. For example, an enhanced taxable bond can now be arranged at a floating rate in the mid 5% range. That is about the same as a similarly structured tax-exempt bond. For a select group of charter schools, this is a very interesting option.

Commercial “mini-perm” loans: For schools that can qualify for bank financing, a short-term loan for up to five years can be arranged so the school can wait for better times to do a tax-exempt bond offering. Often these loans are syndicated among a number of banks on a participation basis. One bank serves as a lead bank to manage the loan. We are involved in arranging these vehicles for three of our clients and the rates in today’s market are very attractive at .75% over prime rate (5.25%). Today the resulting rate would be 6% with very affordable up-front costs.

Good charter schools can still get bond financing, but the interest rates are about 1% to 1.5% higher than they were last year.

Government guaranteed loan programs. For schools that qualify, there are some very attractive loan and bond programs that are guaranteed by the Federal Government. They are taxable bonds with a rate that is very attractive and have very reasonable up-front legal costs. Today’s rates are at or below 6% fixed for a thirty-year amortizatio

Tax Credit loan programs. For schools that serve certain target populations, there are loan programs and enhancement programs which make getting financing more realistic than otherwise possible. For example, I recently priced a New Market Tax Credit loan at 5.5%.

These are just a few examples of a growing variety of financing alternatives available to charter schools. With the growth of charter schools nationally, there is a growing interest among the financial community in providing facility financing for them. The market keeps getting broader and deeper, so it is increasingly important that charter school operators become knowledgeable about what options are available to them. That will not happen if you just visit with one or two investment bankers or lenders. Conflicts of interest abound and any one source of money only has certain kinds of financing available. As a financial advisor to charter schools, we are always looking for the type of financing that is best for our client schools. Further, we work hard to get the lowest possible overall cost for our clients. If you are looking for facility financing and have been concerned about uncertain markets, please don’t hesitate to call us. We are glad to visit with you and discuss your needs with no obligation.

For information contact Brent Van Alfen, Providence Financial Co., Inc.
Phone: 801-299-8555
Email: brent@providencefinancialco.com