Charter School Business
Providence Financial - Funding for Charter Schools

Charter School Monthly Newsletter
Providence Financail Helps Charter Schools Getting Funding
Charter School Central Forum



   Home

   Monthly Newsletter

   Charter School Funding

   Providence Financial

   Contact Us







CHARTER SCHOOL BUSINESS





MONTHLY NEWSLETTER:  MAY 2010 ISSUE

SOME CHARTER SCHOOL BOARDS SHOULD BE “PUT IN THE STOCKS!”
BY BRENT VAN ALFEN
PROVIDENCE FINANCIAL CO., LLC



I know a fine charter school that is stuck with a 9.5% interest rate on the bond offering they entered into last year at the height of the financial crisis. They worked directly with a bond underwriter that provides tax-exempt bonds, so that is what the underwriter eagerly recommended to this school. Of course, there is a no-call provision in the bonds; so if the school wants to pay the bonds off in less than ten years to reduce their rate, there will be a huge penalty.

We knew of this impending financing and tried many times to get the opportunity to talk to the board, so we could present some alternatives. In fact, this school is in a rural community and qualifies for a financing program guaranteed by the USDA! This would have given them an interest rate under 6%! The problem was that the board was so enamored with the out-of-state underwriter they basically took whatever they were told as indisputable fact…. “tax-exempt bonds were the only way to go!”

Finally, after the construction was almost complete and the contractor wanted his money, someone from the school called us to complain about the bond interest rate and to see if we had a better alternative. We told them about the under-6% program, but we would need 90 to 120 days to close. This individual said they could not wait that long as they were being pressured to close on the bonds and pay off the contractor. The school representative ended the conversation with the statement that they would just refinance and pay off the bonds later. He was obviously unaware of the costs of paying off the bonds, and did not realize that the USDA program is now lost to him forever; because they will not refinance other long-term debt.

Who is to blame for this obscene waste of taxpayer money? The underwriter representatives are paid to bring in business for their employers--not to protect the interests of the school. They would have provided a lower-rate bond if available, but this was the market at the time for that product….too bad, so sad. Yes, the school also had a “financial advisor” in the transaction; but there is a catch. The “financial advisor” came along with the underwriters. The underwriters said, “let my friend the ‘financial advisor’ represent you, because he is very knowledgeable and we work well together”! (And he is likely someone’s brother-in-law.) What is wrong with this you ask? Let’s put it in a different context and say someone files a lawsuit against you and proposes to provide your attorney for the litigation. He is a very good lawyer and they have been in several litigations with him before (all of which they won). Ridiculous you say? I agree; but it is no more ridiculous than to have an underwriter provide your financial advisor, because their roles are adversarial in the transaction…see the GFOA statement on page three of this newsletter.

The blame for this travesty rests squarely on the board of directors of the school. They did not hire an independent advisor to help them. To my knowledge, they did not even interview any other underwriters. Board members of a charter school have a fiduciary responsibility as recipients and custodians of public funds and may be held accountable (if not legally, at least morally) for acting as foolishly as the board of this school did.

I imagine almost all of those reading this article shop around among many car dealers when buying a car, but it is amazing to me how many charter school boards do no due diligence (shopping) when determining what type of financing to get for the school and where the best source can be found. After all, it is only a multi-million-dollar financing!!
For information contact Brent Van Alfen, Providence Financial Co., LLC
Phone: 801-299-8555 Email: brent@providencefinancialco.com






       Protect your family in an emergency with emergency food from Survivalist Food. If your child is at school, and an emergency
       situation arise, Wise Food's convenient Grab & Go Buckets allow you to grab a bucket of food on your
       way out the door to pickup your child.