Innovations in Financing

1. Innovations in Financing Creating a Continuum of Financing Options for Education

2. Welcome to IFF

3. Agenda • IFF Overview • Challenges to Charter School Finance • Creating a Continuum of Charter School Finance • Charter Financing in the Current Climate • Q & A

4. IFF Overview Nonprofit CDFI provider for below-market real estate and equipment loans and real estate consulting for nonprofit sectors serving low-income and special needs communities • $145 million total assets • $115 million loans receivable • $2 million annual consulting fee revenues • Closed 680 loans totaling over $225 million to agencies serving over 1.3 million people • Developed over 1 million sqft. of community facilities • Serve Illinois, Indiana, Iowa, Missouri and Wisconsin • 2008 Wachovia NEXT Award for Opportunity Finance

5. Lending • Direct lending up to $1.5 million • Financial packaging of bank debt and IFF loans • Credit enhancement of bond financing for projects over $5 million 59 loans totaling $23+ million; 9 campuses bond financed totaling $49 million; packaging of $125 million

6. Real Estate Services • Project Feasibility Analysis • Facilities Planning Services • Project Pre-Development • Project Management • Real Estate Development Consulted on 38 different campus projects, including development of 13 campuses; total of 6,700 new students

7. Consultant to Chicago Public Schools Authorizing review Facilities consulting Strategic advice Needs Assessment Research Advocacy Public Policy and Research

8. Challenges in Financing Charter Schools • Often start-up organizations • Limited charter terms • Best practices call for ramp up model • Fundraising • Little equity • Loan to value problems • Inexperience in development • Timing development and financing

9. Financing Throughout School Development Non Credit Enhanced After 10 years in Stand-alone Bond Program or 2 charter renewals, schools enter into non-credit enhanced bond financing. Stand-Alone More established charters participate in stand-alone bonds. Pooled Bonds Established Charters participate in pooled bonds to demonstrate successful track record. IFF Loans New Schools

10. Charter School Capital Program IFF Loans • Projects from $10,000 to $1.5 million • 5% fixed rate financing • Terms up to 15 yrs. • Financing for start-up, pre-development, equipment, acquisition, renovation, new construction, on leased and owned space 59 loans to 28 schools totaling $23+ million CONTINUUM OF SERVCIES • Real Estate Services* • Assistance with every stage • Site selection • Facilities assessment • Space planning • Project budgeting • Project management • Completed 25+ consulting & development projects • *in certain markets • Bond Financing • with $18 million U.S. Dept of Education grants • Projects over $1 million • Low, tax-exempt, investment grade rates • Terms up to 30 years • Credit enhanced for public market access • Leased or owned spaces • 100% financing • Sponsored $49 million for 9 campuses (new & existing)

11. Features of IFF Charter School Loans • Start up schools are eligible • Financing available for leasehold improvements • Gap financing provided • Will subordinate to commercial banks • Loan term NOT tied to charter term • Only 5% equity requirement • No Fees, points or prepayment penalties

12. ACT Charter School, Inc., Chicago IFF partnered with ACT since its inception, helping ACT grow even during years of fiscal challenges.

13. CSCP Bond Program Goals Capital Market Access • $18 million Credit Enhancement as Debt Service Reserve Fund • Lower risk of charter school by providing additional liquidity • Secure long term, low, tax exempt rates • Finance long-term facility leases and purchases • Simple covenants Leverage • Over $300 million in capital Impact • 39 schools created in Illinois, Missouri, Wisconsin and Indiana • 19,500 students served (with 75% students qualifying for free and reduced lunch • Result in approximately 2 million square feet developed

14. Financing Features: Tax Exempt Bonds • Credit Enhancement: • Up to 10% of par amount of bonds • Debt service reserve fund • Provides additional liquidity • 100% project financing available • For projects from $1 million - $??? • Available for leasehold improvements • Fixed rate • Level debt service • Capitalized interest available • IFF facilitated; experienced team; standardized documents; simple covenants

15. IFF’s Role as a Sponsor A Market Leader: • Creating access to affordable capital • Able to leverage real estate experience and relationships • Highly committed to doing whatever it takes • Providing construction loan capital • Monitoring construction • Moving transaction to closing

16. Representative Loan & Bond Transaction Noble Network of Charter Schools • Four expansion campuses for 2007 and 2008 school years • IFF RES identified all sites and managed development projects • Two IFF pre-development loans = $5 million • Two IFF loans for acquisition and lease build-out = $2 million • Two bond issues permanent financing = $25 million • Both received “A” rating • Each just under 6% fixed interest rate for 25 years

17. Charter School Financing in Current Climate • Bond markets have seized up • Banks extremely cautious around both collateral and exposure • CDFIs needed to reduce exposure and credit enhance private debt

18. IFF’s Role • Design financing structure particular to each school • If applicable, introduce to and partner with banks • Provide experienced team, standardized documents, negotiated lower fees, etc. • Facilitate process and move to closing • Highly committed to doing whatever it takes • Provide construction and predevelopment loans • Increase IFF subordinated debt • Increase credit enhancement • Provide monitoring

19. Private Placement Bonds • Namaste Charter School • 5 year old elementary school in need of space to accommodate growing enrollment • $7.5 million addition onto leased property • IFF secured $4,000,000 in privately placed bonds • IFF provided credit enhancement equal to 10% of bank’s loan in debt service reserve fund • IFF increased direct loan to $2.5 million • Bank additionally provided bridge loan to ensure construction continued to meet schedule

20. Bank Debt • Chicago Math and Science Academy • 5 year old middle/high school in need of additional space for growing enrollment and to increase capacity to serve more students • $11 million acquisition and renovation of former retail space • IFF secured $5,000,000 private bank loan • IFF provided credit enhancement equal to 10% of bank loan in debt reserve fund • IFF increased direct loan to $5,000,000 • IFF provided $400,000 5-year FFE loan

21. New Markets Tax Credits • Comer Science and Education Foundation • $21 million new construction high school campus to be operated and leased by established Noble Network Charter Schools • IFF secured leveraged loan in amount of $8 million and equity investor • IFF provided credit enhancement equal to 10% of loan in debt service reserve fund • Credit enhancement lowered interest rate charged and enabled bank to accept interest only payments during credit period

22. Resources from IFF IFF web site (www.iff.org) • Technical assistance worksheets • Publications and research reports • Regional and Missouri eNewsletters • New products and services for nonprofits • New technical assistance resources • New publications and research reports

23. Contacts Jill Levine Director of School Services (312) 596-5108 jlevine@iff.org Michelle Gleason Program Associate – Charter Schools (312) 596-5113 mgleason@iff.org Joe Neri Executive Vice President (312) 596-5104 jneri@iff.org