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Specialized Solutions to Meet a School's Unique Financing Needs

Providence Financial has helped numerous charter schools with financing solutions unique to their needs. Because we are independent of any money source, we have several potential financing solutions. Below are a few examples of the value we provide to our clients.

Providence Hall Charter School

A 1st Year Charter School Financed with a Unique Combination of a USDA Loan and Taxable Bonds

A few community members in Herriman, Utah had ideas about ways to improve public education. One of their most pressing concerns was the crowded classrooms in surrounding traditional public schools. They wanted to improve the education options available for their children and the community. After hundreds of hours of volunteer work over a couple of years preparing a charter application and planning a school, a charter was awarded to Providence Hall charter school and they opened their doors in August 2008.

Providence Financial began working with the founding board of Providence Hall charter school early in the process to help plan their facility, develop financial forecasts and to determine the amount of facility payment that the school could afford. Providence Financial determined that due to the population of Herriman, the school qualified for an extremely beneficial program through the United States Department of Agriculture ("USDA").

We structured an innovative financing that combines a direct loan from the USDA with privately placed bonds that carry a USDA guarantee. We helped the school compile a feasibility study and other application material, coordinated with the USDA and secured a buyer for the bonds. We closed on this $10.8 million financing in April 2009, only eight months after the school opened. It resulted in a very low-cost 30-year financing with a fixed interest rate of 5.56% - much lower than the tax-exempt bond market at the time (over 9.25%). This structure also resulted in much lower fees than a typical tax-exempt bond offering. Providence Financial was the first in the country to structure a charter school financing in this way. This structure will save the school millions of dollars over the life of the financing.

Shekinah Learning Institute

A Bank Loan Structure

Shekinah Learning Institute operates several very successful charter school campuses, mainly in the San Antonio, Texas area. Shekinah educates over 2,000 economically disadvantaged students who have "fallen through the cracks" in traditional public schools and they help them catch up to grade-level performance. As Shekinah management started working toward a goal of having a custom-built school facility, they engaged Providence Financial to help them through the process.

During the planning process, the bottom fell out of the financial markets in the fall of 2008, complicating the school's borrowing ability. To help mitigate the challenging borrowing environment, we identified and helped the school apply for a US Department of Education grant. Shekinah was awarded this grant, which provided $750,000 toward the financing. This grant will save the school approximately $30,000 - $40,000 per year for the next 30 years.

Based on the options that were available in the financial market at the time, in conjunction with Shekinah management, we concluded that a 6-year construction / mini-perm bank loan was the best option available. This allowed Shekinah to take advantage of the low short-term interest rates and postpone a long-term financing until the long-term interest rates are more conducive. Upon expiration of this loan, the school will likely be able to achieve an investment-grade credit rating on long-term debt. Shekinah closed on this $8.3 million financing in January 2010 at a 3.25% interest rate and is currently building their new school facility. Soon they will have a world-class educational facility to match their world-class education model.

American Preparatory Academy

American Preparatory Academy is one of the most respected charter schools in Utah. School management engaged Providence Financial to help them execute on their plans to open a second campus to educate an underserved refugee population.

A problem we confronted in early 2009 was a very challenging financial market with high long-term interest rates. American Preparatory Academy management did not want to postpone their plans to wait for a better interest rate environment.

To facilitate the school's plans while trying to mitigate the high interest rate environment, Providence Financial identified and negotiated with a mutual fund to purchase 30-year bonds with two important concessions:

(1) a provision that the interest rate on the bonds will adjust after two years to a market interest rate (when hopefully interest rates would be much lower than they were) and (2) a 2-year no-call provision instead of the typical 10-year no-call provision.

This will allow the school to refinance the debt much earlier than with typical terms. We were also able to negotiate an interest rate approximately 1% lower than the prevailing bond market. These provisions significantly improved a financing in a high interest rate environment. This mutual fund agreed to these concessions because we helped the school tell their story and the management of the fund came to believe in American Preparatory Academy.

American Preparatory Academy closed on their $6.9 million financing in March 2009 and completed their new facility in August. They opened their new campus with full enrollment and a large waiting list. By all measures, American Preparatory Academy's new campus is a great success.

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