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DEBT FINANCING OPTIONS FOR REFINANCING OR CAPITAL PROJECTS CALIFORNIA ASSOCIATION OF INDEPENDENT SCHOOLS JANUARY 23, 201

DEBT FINANCING OPTIONS FOR REFINANCING OR CAPITAL PROJECTS CALIFORNIA ASSOCIATION OF INDEPENDENT SCHOOLS JANUARY 23, 2010. Presented By: Steven J. Stogel In Participation With: Deborah Richman Head of The Turning Point School Dated: January 23, 2010. Turning Point School – Phase I

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DEBT FINANCING OPTIONS FOR REFINANCING OR CAPITAL PROJECTS CALIFORNIA ASSOCIATION OF INDEPENDENT SCHOOLS JANUARY 23, 201

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  1. DEBT FINANCING OPTIONS FOR REFINANCING OR CAPITAL PROJECTS CALIFORNIA ASSOCIATION OF INDEPENDENT SCHOOLS JANUARY 23, 2010 Presented By: Steven J. Stogel In Participation With: Deborah Richman Head of The Turning Point School Dated: January 23, 2010

  2. Turning Point School – Phase I 8780 National Boulevard Culver City, CA

  3. PHASE II PHASE I • Site Plan of Phase I (2.0 acres) and Phase II (1.8 acres) • Increased enrollment capacity from 350 ± to 480!

  4. Phase II – Existing Condition

  5. Interior of Phase II – As-Is

  6. New Phase II Site Plan

  7. New Lobby

  8. Phase II Schematic

  9. New Auditorium & Theater

  10. Phase II Multi-Media Room

  11. Phase II Project and Financing: Original (2006) Estimated Construction Costs (2012 start) $10,000.000 Original Estimated “Total Development Costs” including A&E, title, legal, insurance and other costs $15,000,000 Actual 2009 Construction Costs, all in $ 7,700,000 Actual Total Development Costs $11,500,000

  12. Tax Exempt Debt Terminology: • Unenhanced • Enhanced (Letter of Credit (“L.C.”)) • Fixed • Floating – LIBOR and SIFMA Index • Section 501(c)(3) • Section 145 – Bank Qualified Bonds (“BQBs”) • Issuer • Term of Bonds • Terms of Enhancement/Balloon Date • Prepayment Lock-out/Yield Maintenance • Project Financing • Pledge Financing

  13. FORMAT OF TAX EXEMPT BONDS 501(C)(3)BQBs Issue: Qualifying Agency Qualifying Agency Trustee: Bank/Custodian Bank/Custodian Offering: Public Direct to Bank Securities Law: Yes No Legal & Other Costs: 2-4% 1.5-3% L. C. Bank: Rating of L.C. Bank is Key Determined by Bank Unenhanced: Rating/Condition of School is Key Determined By Bank Interest Mode: Fixed/Floating Fixed/Floating

  14. SECURITY INDUSTRY AND FINANCIAL MARKETS ASSOCIATION “SIFMA” INDEX http://www.sifma.org/

  15. ORIGINAL TURNING POINT PHASE I FINANCING Issue Date: 2001 Original Issue: $12,000,000 Issuer: California State-Wide Community Agency IRC Code Authorization: Section 501(c)(3) Form: Unenhanced Interest Rate: 6.5% Term: 30 year, self amortizing

  16. CURRENT TURNING POINT PHASE I REFINANCING Issue Date: September 19, 2009 Amount: $11,370,000 Issuer: California Municipal Finance Authority IRC Code: BQBs Form: Enhanced with a US Bank Letter of Credit Annual Floating Rate: 13 b.p. (1/13/10) Annual L.C. Costs 200 b.p. CAP Purchase: 400 b.p. Amortization: Level 30 year schedule (after 16 month interest only period) Term of L. C. 10 years

  17. CURRENT TURNING POINT PHASE II FINANCING Issue Date: September 19, 2009 Amount: $6,865,000 (New Construction) Issuer: California Municipal Finance Authority IRC Code: BQBs Form: Enhanced with a US Bank Letter of Credit Annual Floating Rate: 13 b.p. (1/13/10) Annual L.C. Fee 200 b.p. CAP Purchase: 400 b.p. Amortization: Level 30 year schedule (after 16 month interest only period) Term of L. C. 10 years

  18. TOTAL COST OF PERMANENT FINANCING PHASE I AND PHASE II Phase I Phase I & II ** 2001 Series * 2009 Series Annual Cost $975,000 $ 940,000 $ 385,000 Interest, L.C. Fee and Other 535,000 2011 Principal 25,000 CAP Cost @ $25,000 $ 940,000 * Original Phase I debt was $12,000,000. ** Based on $15,000,000 balance, as of 1/1/11, net of programmed reductions of principal.

  19. SPECIAL RULES FOR BANK QUALIFIED BONDS (“BQBs”) • General Rule for Acquiring/Carrying Tax Exempt Debt • 1986 “Rules” under TRA of 1986 • $10,000,000 limit per City (including City and non-profits!) • Interest non-AMT • 80% interest deduction • 2% test for Banks as Purchaser • 2009 Rules under the American Recovery & Reinvestment Act (the Obama Stimulus Bill) • $30,000,000 limit per City and per every (c)(3) non-profit • Interest non-AMT • 100% interest deduction • Expand 2% test for Banks • BQBs can be issued only until December 31, 2010

  20. BANK UNDERWRITING CONSIDERATIONS IN L. C. FORM OR BQB • Term of Bonds • Term of Enhancement • Financial Statement of School • Cash Flow Consistency • Enrollment History • Who is on the Board of Directors • Annual Giving • Percentage of Scholarship Support • Prior Capital Campaigns • Endowment • Real Estate Appraisal Tests •   Real Estate Value-As-Is • Going Concern as a School •   Recourse • School Assets • Negative Pledge • Financial Covenants • No Material Adverse Change • Liquidity Covenant • Relationship (Prior & Future) with Bank • Time Lines • Conventional Loan Alternative

  21. INTEREST RATES RANGES (1/11/10) SECTION 501(c)(3) UnenhancedL. C. FloatingL. C. Fixed 5 yrs.L. C. Fixed 10 yrs. 6.5% SIFMA Index 3.75% ± 4.5% ± + 2.00 - 2.25% L.C. Fee & Other = 2.25 - 2.75% BQBs UnenhancedFloating5 Year10 Year N/A 67% of 30 day 3.25% ± 4% ± LIBOR + 160– 200 b.p. “spread” = 1.75% to 2.25%

  22. BOARD CONSIDERATION IN USE OF DEBT • Refinancing to Lower Costs • New Debt to Build • Costs of Construction Today! • Impact on Enrollment – A Positive! • Effects on Fund Raising For Construction of Capital Projects • Pre Construction Start: Easiest for both restricted or unrestricted gifts • During Construction: Well received as new construction is tangible and present • Post Completion of Construction – hardest, but multi-year (even up to 7 years!) pledges from • “Day 1” are readily incorporated into Financing Model • Long After Completion of Construction • Next “Phase” Story • Debt Retirement • Enrollment Strategy • Each School’s Story is Unique

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