The California Charter School Association, the country's largest charter school membership organization, representing 510 charter schools statewide, and NCB Development Corporation (NCBDC), a leading charter school finance and development organization, have formed a consortium for the purpose of creating the California Charter Building Fund (CCBF). The consortium will use its $10 million Credit Enhancement for Charter School Facilities grant to fund a first-loss reserve that will leverage $100 million in private sector capital. The grant funds will be used to enhance subordinate lenders who will capitalize a pool of $20-25 million.

The critical innovation of CCBF is to offer a full package of direct services and financing at a risk-adjusted below market rate to the borrower, creating long-term value, while offering senior lenders a significantly lower credit risk. Based on NCBDC's experience, CCBF expects to lend at approximately one percent below the risk-adjusted pricing of a conventional lender and offer longer amortization periods of up to 20 years, which will improve cash flow and keep schools' scarce resources available for their core mission of driving student achievement.

By creating an innovative two-tiered structure with the credit enhancement protecting the subordinate lender and the subordinate lender protecting the senior investor, CCBF will realize a higher leverage ratio than traditional credit enhancement programs. Schools will receive access to capital through CCBF at rates and terms that are better than other market options currently available.

During the first five years of the program, 25 schools will have access to capital (at an average loan size of $4 million) resulting in approximately 9,000 new seats in high quality charter schools in California. The California Charter Schools Association will target its grant to help build high quality charter schools in high need communities. Capital will be available for new construction, building acquisition and renovations, leasehold improvements, and long-term financing.

The Illinois Facilities Fund (IFF), a community development financial institution founded in 1990, will use its $8 million Credit Enhancement for Charter School Facilities grant to establish the Illinois Charter Capital Program (ICCP). The ICCP will result in approximately $150 million in capital investment in charter schools between 2006 and 2015, resulting in an overall leveraging ratio of 18.75:1. The ICCP will serve 24 schools and 10,000 students, providing as much as one million square feet of school space. The majority of ICCP's activities will be in Chicago, but will be available to all Illinois charter schools.

The ICCP builds on the IFF's existing charter school experience and establishes a continuum for significantly larger facilities financing needs. The grant funds will be used to facilitate two components of ICCP: pooled bond issues and a series of stand-alone bond issues.

ICCP will offer long-term, tax-exempt bond issue financing to charter schools that qualify. The grant will be used to fund reserves (and limited expenses), and will be available to provide support for additional bond issues, as schools perform and mature and require less reserve over time. It is expected that, as the participants in the pooled bond program establish successful track records, the credit enhancement requirement will be reduced and these schools will move into stand-alone issues. The credit enhancement that is reduced by moving schools up in credit status will be available to leverage funds for other qualifying schools. As schools in the stand-alone bond program mature, they will refund their debt, and enter the marketplace on their own, freeing up capacity for new entries into the program. After ten years, or two renewals of their charter, schools participating in the stand-alone program will graduate to non-credit enhanced bond financing. This will make substantial amounts of the grant funds for use by other schools coming into the pool or new stand-alones for the future.

Proceeds from the sale of bonds will be used to acquire, build or renovate schools, including leasehold improvements. Leasehold improvements are renovations to leased property, which are often necessary to make a space suitable for a school. ICCP will provide rates and terms to charter schools that are more affordable than they would be able to obtain otherwise.

The Indianapolis Local Public Improvement Bond Bank (Bond Bank), an AAA-rated local bond agency, will use its $2 million Credit Enhancement for Charter School Facilities grant to provide critical support for the Indianapolis Charter Schools Facilities Fund (Facilities Fund). The Indianapolis Mayor's Office and the Bond Bank, in partnership with the Annie E. Casey Foundation, the Local Initiatives Support Corporation, and JP Morgan Chase Bank, N.A have created the Facilities Fund to provide financing for facilities development for Mayor-sponsored charter schools in Indianapolis. The $2 million in grant funds will fund the Debt Service Reserve required for the Facilities Fund.

The Bond Bank will issue tax-exempt obligations and serve as a conduit for a maximum of $20 million in charter school facility loans. This will serve approximately 23 schools enrolling 4,000-6,000 students. Loan proceeds may be used for the acquisition, construction, renovation and leasehold improvements of Mayor-sponsored charter school facilities. The Bond Bank will receive debt service payments from individual schools, which will in turn be used to pay debt service on the Bond Bank's obligations.

By using the Bond Bank as a conduit, charter schools will have access to tax-exempt interest rates for their facility financing needs. In addition, the Bond Bank obligations will be secured by the Debt Service Reserve to be funded with proceeds from the federal grant. In the event of a deficiency in the Debt Service Reserve, the Bond Bank is required to utilize the moral obligation by requesting an appropriation from the City-County Council to replenish any such deficiency. Use of the moral obligation as a credit tool lowers the interest rate on the Bond Bank's obligations and further reduces the cost of financing for participating charter schools.

The combination of the reserve funds and the ability of the Bond Bank to issue debt on a tax-exempt basis allows the Bond Bank to borrow at attractive interest rates that can be passed on to the charter schools. The Credit Enhancement grant will reduce charter schools' financing costs by approximately 10 percent, thus saving them over $3 million, which can then be devoted to instruction.

The Texas Public Finance Authority (TPFA) was created in 1984 to provide capital financing to state agencies in Texas and provides staff support to the Charter School Finance Corporation (CSFC). Texas created the CSFC in 2004 to issue revenue bonds for Texas charter schools. The TPFA has entered into a consortium agreement with the Texas Education Agency (TEA) and the Resource Center for Charter Schools to operate the Texas Credit Enhancement Program (TCEP). The TCEP will establish a debt service reserve fund for bond issuances on behalf of eligible Texas charter schools.

The TCEP will use the $6.9 million in Credit Enhancement for Charter School Facilities grant funds combined with a $100,000 TEA contribution to establish a guarantee fund for tax-exempt revenue bonds issued by the CSFC to provide financing for the acquisition, construction, repair, or renovation of Texas charter school facilities, including refinancing of facilities debt within federal program guidelines. The $7 million in funds will leverage financing at a ratio of approximately 12:1.

The TCEP will help many Texas state-approved charter schools access facilities funding at a lower cost than they would otherwise be able to secure. It will also help charter schools that may not be able to secure facilities financing from private sources on their own.

Charter schools will establish their eligibility to apply for guarantee funds by meeting the criteria established by the CSFC Board using two statewide school accountability systems developed by TEA. The first system focuses on student performance and the second system, the School Financial Integrity Rating System, focuses on financial integrity.

The CSFC Board will make the final decision regarding which charter school applications for bond financing will be guaranteed by the fund created by this grant. The CSFC will issue the bonds and will maintain control over the fund and serve as the fiscal agent for the grant. It will establish guidelines regarding the maximum amount of the reserve fund that each charter school may access. As the bonds mature and the charter schools initially awarded the debt service guarantee funds retire their debt, the funds will be recycled to fund other charter schools.

The Reinvestment Fund (TRF) is a nonprofit corporation that was founded in 1985 to build wealth for low wealth people and places. TRF will use its $10 million Credit Enhancement for Charter School Facilities grant to establish the TRF Charter School Growth Fund (the Growth Fund). The Growth Fund will be a $50 million multi-product loan program enhanced with $10 million in first loss funds from the U.S. Department of Education (ED). The Growth Fund will be comprised of two facilities: a $15 million facility to fund subordinated debt, energy efficiency loans, leasehold improvements, and loans accompanied by New Markets Tax Credits allocations; and a $35 million permanent mortgage fund that will originate as TRF construction loans and be sold into the permanent mortgage fund.

TRF's projection for the next five years includes 39 loan transactions to 26 new schools. These loan transactions will produce approximately 15,000 charter seats and additional seats in later years as funds revolve. The ED credit enhancement reserve account will leverage five dollars of private debt for every one dollar of public enhancement. TRF will leverage debt resources from its existing investor base, including banks that are strong supporters of TRF and previous charter school fund investors. The service area for the new fund will include Pennsylvania, New Jersey, Delaware, Maryland and the District of Columbia.

TRF's Growth Fund will offer flexible financing and technical services in construction management and energy efficiency planning in order to decrease the overall project cost associated with charters. In addition to the project development assistance, the program will also deliver organizational and business assessments to stabilize the start-ups that they will finance and to help the emerging charter management organizations grow and expand. TRF will offer non-conventional loans in the areas of leasehold improvements, subordinate loans and high risk predevelopment financing. Finally, TRF's Growth Fund will offer more affordable rates and lower closing costs than charters find through conventional debt.