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Independent financial advisors serving the capital financing needs of colleges and nonprofits
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Academy for Global Citizenship
Black Ensemble Theatre
College for Creative Studies
Grand View
University
Iowa Wesleyan College
Lycee Francais de Chicago
Missouri Baptist University
Noble Network of Charter Schools
Northern Illinois University
St. Louis College of Pharmacy
Wartburg College
West Virginia State University
William Penn University
Westminster College
| York College
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Testimonial
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Longhouse Capital Advisors are honest, constant, creative, persuasive, hardworking, plain-spoken, patient and tireless client advocates. They are top knowledge-leaders in their profession. The Neighborhood Academy gives LCA the highest possible of recommendations and commends Michael and Lindsay to anyone who is looking for creative financial advocacy and loyal partnership.
- Jodie Moore, President & Co-Founder, The Neighborhood Academy
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Greetings!,
As Longhouse approaches its third anniversary, we are proud to launch the inaugural issue of our Newsletter. We see this as a forum for sharing some of the financing techniques and developments we are seeing in the market. We also ask for ideas from you, our colleagues and clients, regarding key financing issues that you wish would receive more illumination and discussion.
In this first edition of our newsletter, we profile two recent financings, highlight a collaboration between two Longhouse clients and outline the common features of a "winning" bank term sheet.
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 This Month's Highlighted Financings | | |
This month we are highlighting two financings recently completed by Longhouse.
University of St. Francis (Joliet, IL)
In the summer of 2013 LCA helped to complete a debt restructuring for the University of St. Francis (the "University" or "USF") in Joliet, Illinois. USF serves 3,400 students via undergraduate, degree-completion and graduate programs. The University had two outstanding letter of credit backed, variable rate demand bond issues with associated swaps that it was seeking to restructure or refinance. LCA was engaged in March 2013 to advise the University as it constructed a plan of finance, sought a new financing partner and completed the documentation and sale of its refinancing issue.
Longhouse conducted a competitive bidding process to find a new financing partner for USF's existing $24.5 million in bonds, to fund a swap termination payment and to provide a line of credit. The RFP was sent to 6 banks, all of which responded with a term sheet to provide the financing by the 4-week deadline that was required. Ultimately, the new financing was closed in June 2013 and completed at a rate of 2.16%, fixed for 7 years. The refinancing will save USF nearly $1.3 million in principal and interest payments annually and approximately $5.5 million in interest savings alone over the first 10 years.
More...
Legal Aid and Defender Association, Inc. (Detroit, MI)
Longhouse was engaged by the Legal Aid and Defender Association in Detroit ("LAD" or the "Association") in the spring of 2013 to help the organization find a new financing partner for its outstanding letter of credit backed VRDB bonds. LCA sent a credit memo to 15 banks requesting proposals to provide either a tax-exempt direct placement or a taxable loan. In August 2013, LAD closed a conventional taxable mortgage loan with a new bank. The financing provided a 5-year credit commitment and a fixed rate during those five years that will save the Association an estimated $350,000 annually relative to its prior debt service.
More...
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Profile of LCA Activities
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Longhouse's Work in Missouri and Elsewhere
In the summer and fall of 2013, Longhouse has taken on a number of engagements in Missouri and in the St. Louis area, in particular. Our clients include Westminster College, the St. Louis College of Pharmacy, Missouri Baptist University, and Missouri Valley College.
The growing scope of Longhouse's national financial advisory practice has been a poorly-kept secret for some time now. In addition to extensive work in our home state of Illinois, we have completed engagements in Iowa, Michigan, Pennsylvania, Nebraska, West Virginia, North Dakota, Indiana and New York. Many of these engagements come through recommendations from past and current clients.
Should you know of a nonprofit organization or educational institution that could benefit from Longhouse's services, please don't let geography get in the way. We would be more than happy to visit and consult with potential clients anywhere in the United States.
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Profile of LCA Client Activities
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Wartburg - Noble Collaboration a Win-Win for Both
Sometimes we find connections between our clients in surprising places. Witness the recent announcement of an $11.5 mm commitment by a Chicago couple to establish scholarships to Wartburg College, a venerable and high-quality Lutheran college located in Northern Iowa.
The fund will support scholarships for Chicago public school students, with a preference for students from the Rowe-Clark Math and Science Academy. Rowe-Clark is a campus of the Noble Network of Charter Schools. Both Wartburg College and Noble are financial advisory clients of Longhouse.
The connection between the two institutions? Ray and Judy McCaskey, Chicago area residents who are both graduates of Wartburg and also strong supporters of Rowe-Clark. Ray McCaskey is the former President of Health Care Service Corporation, an entity that includes Blue Cross Blue Shield of Illinois, Texas and New Mexico. He is also the current chair of the Wartburg College Board.
The connection between the two institutions seems inspired to us.
More...
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Nonprofit Financing Market Update
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Elements of a Winning Term Sheet
During the past 12 to 18 months LCA has run numerous competitive processes for our clients to obtain new financings. The successful terms sheets we receive from bidders have had a number of common elements.
Length of credit commitment: We are regularly seeing banks willing to give 7 and 10-year credit commitments. While longer commitments are typically more costly than shorter ones, and are not always recommended by LCA, Borrowers appreciate having these additional options.
Flexible covenants: Debt Service Coverage Ratios of 1.15x or lower; and Liquidity Ratios that sometimes include restricted funds.
Ability to creatively address existing "underwater" interest rate swaps: Lenders who have the ability to novate existing long-dated swaps or to creatively refinance them in other ways tend to be given high marks by our clients.
Negative pledge of security or abundance of caution mortgages: Avoiding the uncertainty and costs of an appraisal is seen as an advantage by borrowers.
Longer amortizations and some principal deferral: We are regularly seeing 25-years and longer amortization options, often with 1 to 3 year, or more, interest-only periods.
Fair spread in swap pricing: Increasingly, lenders whose subsidiaries provide swaps are being asked by bond counsels to provide transparency with respect to swap spreads. More and more this involves engaging with separate "swap advisors" to show that these spreads are "on market." We expect that in the coming years a majority of financings will include such market evaluations, and swap providers who are willing to disclose their spreads and meet these fairness requirements constructively will be advantaged in the eyes of Borrowers.
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Longhouse Capital Advisors Announcements
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We would like to welcome Holly Wiemken to the staff of Longhouse Capital Advisors. Holly is joining us after a 3 year hiatus spent abroad in London, England with her family. Holly worked in the public finance arena for 12 years at BMO Capital Markets and Griffin, Kubik, Stephens & Thompson, Inc. She has structured and executed transactions for numerous clients including public and private universities, social service agencies, municipalities and secondary schools. Holly holds an M.P.A. in Pubic Affairs with a concentration in Public Finance from Indiana University and a B.A. in International Relations from Syracuse University.
We hope that you have enjoyed the inaugural newsletter of Longhouse Capital Advisors. We would welcome any feedback that you may have. Please contact Michael or Lindsay with any comments, questions or if there is any information you would like to see in our newsletters going forward. Until next month...
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Michael A. Boisvert
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Lindsay M Wall
Managing Director and Partner
(312) 307-4736
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| This Month's Highlighted Financings - Continued |
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USF Case Study continued... For the University's long-term debts, Longhouse sought a $24.9 mm tax-exempt direct placement financing maturing in 2037 and a $4.08 mm taxable loan maturing in 2017 to pay for its existing swap termination. The taxable loan was to amortize first, followed by the tax-exempt direct placement. The University also accepted bids for a replacement Letter of Credit in support of its existing Variable Rate Demand Bond structure, but the direct purchase options were ultimately more attractive. USF wished to obtain, and received bids for, credit commitments ranging between 3 - 10 years.
Longhouse helped the University evaluate the six bids it received, not only based on the lowest rate that was offered but on other important factors, including:
- Length of credit commitment
- Flexible covenants
- Additional debt allowance
- Bank's ability to address the existing interest rate swap
- Bank's willingness to accept a "negative pledge" security structure
- General fit as a partner for USF
USF chose a bid from a medium-sized bank that offered a 10-year credit commitment on the tax-exempt portion of the financing (although the University chose to fix the rate for just 7 years of the commitment period) and a 5-year credit commitment on the smaller, taxable loan that was used to fund the swap termination payment. Additionally, the bank was flexible in allowing the University to defer principal payments on the tax-exempt debt until the taxable loan was paid off.
LCA also negotiated flexible security and financial covenants including:
- A reduced Asset Maintenance covenant (i.e. Liquidity Ratio) threshold - from 0.30x to 0.20x - which increased USF's additional borrowing capacity for new projects.
- A more liberal Debt Service Coverage covenant, equal to 1.00x, including a definition which did not subtract from USF's net revenues its annual unfinanced capital project expenditures.
- A negative pledge on the campus as security with no appraisal requirement
Ultimately, the new financing was closed in June 2013 and completed at a rate of 2.16%, fixed for 7 years. The refinancing will save USF nearly $1.3 million in principal and interest payments annually and approximately $5.5 million in interest savings alone over the first 10 years.
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| LAD Case Study continued...
The Association appreciated the simplicity of the taxable mortgage structure relative to its prior tax-exempt letter of credit backed financing. In particular, the financing had:
- No need for Municipality or Authority as Issuer
- No Synthetically Fixed Rate Swap
- No Trustee or Remarketing Agent
- One Monthly Payment Directly to one bank
Longhouse also restructured the Association's existing Debt Service Coverage Ratio covenant so that it removed the impact of accounting and pension valuation changes and was only calculated annually, rather than on a 4-quarter rolling basis. The Association will continue to pledge the same mortgaged property that it had on its prior financing.
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Profile of LCA Client Activities - Continued
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Wartburg-Noble Collaboration a Win-Win for Both continued...
Over 90% of Noble's students go on to college, and nearly 80% of those students go on to 4-year institutions. Noble's students can offer Wartburg a steady stream of students who have strong academic preparation and even stronger character. For some time now, Noble's students have, on average, been scoring 5 points higher on the ACT than students at other CPS non-magnet schools. In addition, Noble's work doesn't end when students go off to college; it offers ongoing assistance to its graduates that persist through school and land jobs in their fields. Indeed, this year the Network hired its first Principal who was a former (Noble?) student!
For the Noble students Warburg offers a small and personalized college experience at a faith-based school of 1,750 students that values and promotes the character of its students. Wartburg has been cited by the Princeton Review as one of the best colleges in the Midwest and had a 97% job or graduate school placement rate in the most recent academic year measured.
So, our congratulations to both Wartburg and Noble, and especially to the McCaskeys for a collaboration that is a Win-Win for everyone.
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