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Independent financial advisors serving the capital financing needs of colleges and nonprofits
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Testimonial
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I cannot tell you how grateful we are that you were able to help us achieve this financing! We had started looking into refinancing about a year before you contacted us and we were not getting any positive results. I will recommend your company to anyone that I hear is needing some long-term debt!
- Todd Sheldon, Vice President for Finance, York College
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Academy for Global Citizenship
College for Creative Studies
Grand View
University
Iowa Wesleyan College
Lycee Francais de Chicago
Missouri Baptist University
Missouri Valley College
Noble Network of Charter Schools
Northern Illinois University
St. Louis College of Pharmacy
Upper Iowa University
Wartburg College
West Virginia State University
William Penn University
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Greetings!,
It hardly seems possible to us that Longhouse Capital Advisors' third anniversary has come and gone. It has been an amazing three years and we are thankful to all of you who have helped make our firm a success! We look forward to many more years serving the capital financing needs of the higher education and nonprofit sector.
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 Profile of LCA Activities |
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In January Longhouse Capital Advisors turned three! This year, in an effort to reach out to our friends and colleagues in Iowa and neighboring states, we held our annual celebration in Des Moines, Iowa. We hosted a wonderful party for new and old friends alike at Centro, a local downtown restaurant. Thanks to our Senior Associate Holly Wiemken for spearheading the planning of the event!
The event included a raffle to benefit our client ChildServe, a nonprofit organization that partners with families to help children with special health care needs live a great life. ChildServe is currently constructing a $10.5 million campus expansion to its headquarters in Johnston, Iowa that will allow the organization to continue to meet its fast-growing demand for services. The revenue for outpatient therapy alone has grown at an average annual rate of 12.5% per year over the past 5 years. ChildServe will also use the additional space to establish an Autism Center and a Parent Learning Resource Center. Thanks to the generosity of our friends we are proud to say our event raised $2,135!
For the last three years Longhouse has been the top financial advisor to Iowa private colleges and nonprofits with 15 financings totaling over $180 million and it is our goal to expand our presence in this market even further in the coming years.
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| This Month's Highlighted Financings |
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This month we are highlighting two financings recently completed by Longhouse.
St. Louis College of Pharmacy
In September of 2013, Longhouse Capital Advisors was engaged to serve as Financial Advisor to the St. Louis College of Pharmacy ("STLCOP" or the "College"). The College is one of the premier educators of pharmacists in the U.S., and currently has about 1,350 students. It is one of only a few pharmacy schools nationally that enrolls undergraduate students, offering a 7-year, integrated Bachelor of Health Sciences and Doctorate in Pharmacy degree.
The College was planning to issue up to $80 million in fixed rate, new money bonds to fund an academic building, a dining hall, a student center and a residence hall. In addition, it was considering combining the new money issue with a fixed rate refinancing of up to $34 million in currently callable bonds from 2006. However, rising rates and dwindling indicative savings had made the College question whether the refinancing would be worthwhile. This was owing in part to a rising rate environment but also to a downgrade from STLCOP's prior A- (S&P) rating to ratings of BBB+ (Fitch) / BBB+ - Neg. (S&P).
The College asked Longhouse to help it assess whether it should issue its new money financings as one issue or two, and to consider the impact of an early-stage capital campaign on this decision. It also asked Longhouse to represent it in discussions with the Underwriter about the efficacy of including a mortgage and a debt service reserve fund in the new bonds' security structure. Finally, Longhouse was asked what the minimum level of present value savings should be if the College were to move forward with the refinancing of its 2006 bonds.
Click here to read about Longhouse's recommendations and the ultimate results of STLCOP's financing
Black Ensemble Theater (Chicago, IL)
In the fall of 2013 Longhouse was engaged by the Black Ensemble Theater ("Black Ensemble" or the "Theater"), a nationally and internationally-known arts institution on Chicago's north side that has been recognized as one of the most diverse theaters in the country, to help refinance its $5 million term loan that it borrowed as part of its $20.0 million construction of the Black Ensemble Theater Cultural Center in 2011.
With the help of Longhouse, and in the span of just 3.5 months, the Theater found a new long-term financing partner through a competitive process and issued a bank-qualified, tax-exempt direct purchase bond at a five-year fixed rate of 3.15%.
Click here for further details about the financing
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Nonprofit Financing Market Update
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At the end of 2013 Wells Fargo's Municipal Research team published an excellent Commentary titled "Market Outlook: Moving into 2014." The Commentary identifies a number of trends that will be of particular interest to our higher education clients.
Wells' Roy Eappen highlights some of the challenges colleges and universities are facing, including new challenges to an already soft enrollment picture:
- The nation's higher education institutions showed a drop in enrollment of 375,000 students from Fall 2011 to Fall 2012. The decline continued into the Spring 2013 semester and was most pronounced among Southern and Midwestern schools, 4-year for-profit colleges, and community colleges.
- Some of these declines are demographically-based, as high school populations decline in certain areas, but economic factors also play a role. The improvement of the economy has drawn more potential students back into the workforce. Also, growing concern about student loan debt and decreasing payoffs to investment in higher education have further softened demand.
- Graduate school enrollments have been of particular concern. The Universities of Maine and Minnesota and George Washington University have all reported declines in graduate headcount. While the Council of Graduate Schools reported slight overall enrollment increases from 2011 to 2012, these were almost entirely fueled by an 8% increase in foreign students. Domestic graduate student enrollment remains flat.
More...
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Longhouse Capital Advisors Announcements
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We are proud to announce that Lindsay Wall, Managing Director and Partner of Longhouse, has been named Treasurer of the Board of Women in Public Finance. Women in Public Finance is a national nonprofit, educational and professional networking organization for women in the public finance industry.
We hope that you have enjoyed this edition of the Longhouse Capital Advisors newsletter. 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. And again, we thank you for all your support over the last three years!
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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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STLCOP Case Study continued...
After consultation with the College and review of its expected project timetable, Longhouse recommended splitting the new money financing into two parts: $50 mm in Phase 1 projects with bonds sold in November 2013, and the remaining Phase 2 funding to be done 12-18 months later.
This division would give the College time both to assess the success of its capital campaign and to refine the actual costs for Phase 2. By doing so, STLCOP hoped to reduce the ultimate level of borrowing, or at least ensure it was adequate for the needs of the second phase of the project.
Longhouse also recommended a higher overall savings threshold for refinancing the prior bonds - a stipulation that resulted in the College refinancing only the shorter maturities of its existing bonds - about $22.4 mm in all. The remaining $11.8 million of 2006 bonds will be refinanced when the longer-maturity un-refunded bonds can meet the higher present value savings threshold, either when the second-phase new money bonds are issued, or on a standalone basis, if necessary.
As to the security for the issue, Longhouse supported offering a mortgage to bondholders, as it was clear that this would result in a lower overall rate. However, LCA provided research showing that most mid-to-high-level BBB-category higher education financings could be sold without a Debt Service Reserve Fund and without negative rate consequences. The reserve fund, which would have raised borrowing costs considerably, was ultimately left out of the financing.
The $77.7 mm new money and refunding issue was priced on November 13, 2013 with Wells Fargo as sole underwriter. The preliminary pricing was more than 4 times oversubscribed, with orders received from over 40 market participants. Because of this strong interest, rates on the term bonds were lowered and the College achieved a True Interest Cost of 5.25%. The refunding portion of the financing achieved present value savings of over $837,000, representing 3.74% of the par amount of the bonds refunded.
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| Black Ensemble Theater Case Study continued...
Further details about the Black Ensemble Theater financing are provided below.
- 5-year rate fixed at 185 bps lower than the rate offered by the Theater's existing bank for the same time period.
- Theater was able to issue bank-qualified bonds with the City of Burbank as its issuer-partner and save approximately 40 bps on its all-in rate.
- Bonds featured a 6-month interest-only period followed by 20 years of monthly principal amortization. The interest-only period gave the Theater a welcome cushion of time to grow into its principal amortization obligations.
- A debt service coverage ratio of 1.10x tested annually at fiscal year-end was the only required financial covenant that the bonds carried.
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Nonprofit Financing Market Update - Continued
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The Commentary also notes important issues in higher education funding:
- Cuts in federal research are resulting in a brain drain of key faculty to other countries, and a recent survey found that two-thirds of medical colleges expect to decrease the size of their Ph.D. programs in the coming year.
- Pell Grants and Federal Work Study were protected from cuts for 2 more years in the recently passed Bi-Partisan Budget Act.
- Addressing the high cost of college has become an abiding concern of the Obama Administration. The President has suggested developing by 2015 a "return on investment" rating system for colleges and universities. He has spoken of ultimately tying federal student aid to an institution's performance on such metrics.
The full Commentary is available on Bloomberg at WFRE, or at www.wellsfargoresearch.com, where readers can request a website ID and password to access the site.
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