CDFI Fund Impact Blog

 

 

CDFI Bond Guarantee Program Gives Boost to CDFIs Seeking S&P Ratingshttps://www.cdfifund.gov/impact/Lists/Posts/ViewPost.aspx?ID=60CDFI Bond Guarantee Program Gives Boost to CDFIs Seeking S&P Ratings<div class="ExternalClass9C20BF5FC2C34EBDB183A53E096C719D"><p>Community Development Financial Institutions (CDFIs) are always in need of capital to invest in their target markets, to grow their balance sheets, and to remain financially viable. Potential sources of capital include philanthropy, financial institutions, private investors, and government programs. One relatively new source of capital is the CDFI Fund’s CDFI Bond Guarantee Program (BG Program). Created through the Small Business Jobs Act of 2010 (P.L. 111-240), the BG Program offers CDFIs access to long-term, low-cost capital that can be invested in distressed and underserved communities. </p><p>CDFIs that have gained access to the BG Program know that the process is not a walk in the park, but the resulting debt maturities of up to 29.5 years, priced at a small spread over treasury rates, can be well worth the effort. The <a href="/SiteCollectionImages/PublicationImages/BP%20Program%20Chart%20Nov%202018.jpg" target="_blank">BG Program enables CDFIs to finance mission-driven projects of various types and sizes </a>including small businesses, commercial real estate, affordable housing, charter schools, daycare or healthcare centers, and infrastructure, among others. </p><p>Unlike other CDFI Fund programs, the BG Program provides loans as opposed to grants. Bonds issued through the BG Program must be repaid to the federal <a href="#government">government</a>. Because Congress has not funded a loan loss reserve for the BG Program, the tolerance for risk is very low. CDFIs applying to the program undergo a meticulous underwriting and financial screening that verifies their financial soundness and ability to repay the debt. The information collected in the BG Program application is used to determine CDFI applicants’ abilities to generate revenue; debt-to-capitalization ratios; portfolio risk; effectiveness in servicing existing debt; as well as management and operations capacity. In addition, the CDFI Fund stress tests the financial projections of program applicants to determine their ability to repay BG Program loans. </p><p>Because the examinations, reviews, and information collected from CDFIs applying to the BG Program are similar to those performed by Wall Street credit-rating agencies, the program has proven to be a good training ground for CDFIs seeking to access debt from the capital markets.</p><p>In fact, Standard & Poor's Global Ratings (S&P), which issues credit ratings for the debt of public and private companies, has provided investment-grade ratings for a half dozen <a href="#CDFIs">CDFIs</a>. Three of these organizations have gone on to issue publically-rated debt.</p><ul><li><p><strong>Capital Impact Partners</strong>: Through two application rounds, Capital Impact has been approved for a total of $95 million in BG Program bond loans. Capital Impact currently has an S&P AA- credit rating. In its credit rating report, S&P cited Capital Impact Partners’ overall asset quality, minimal risk profile, liquidity, and management. In 2017, Capital Impact closed on a $100 million public note shelf offering, which received an AA S&P rating. The offering amount was increased by another $100 million to $200 million in 2018 and rated AA- by S&P. To date, Capital Impact has issued approximately $95 million in notes out of their total $200 million shelf offering. </p></li><li><p><strong>Local Initiatives Support Corporation </strong>(LISC): Approved for a $50 million BG Program bond loan in 2014, LISC then went on to receive an AA rating from S&P in 2016. S&P cited LISC’s organization strength and sustained community impact in its rating summary. LISC then issued a $100 million public debt offering that carried an AA rating from S&P in 2017.</p></li><li><p><strong>Reinvestment Fund, Inc</strong>. (RF): RF has been approved for a total of $126.6 million in BG Program loans from multiple bond issuances. RF went on to receive an AA- rating from S&P in 2017. In its ratings research summary, S&P credited RF’s minimal loss exposure, extremely low-risk debt profile, extremely strong history of loan performance, consistent growth in loans and assets, and experienced and prudent management as being among the reasons for this investment-grade rating. In May 2017, RF received an S&P AA- credit rating for a $50.9 million public bond issuance. In October 2018, RF announced the close of an additional $75.7 million in general obligation bonds.</p></li></ul><p>In addition to providing much needed capital to CDFIs, the rigorous underwriting process that CDFIs must endure in the BG Program has turned out to be a useful stepping stone for CDFIs seeking to reach larger pools of capital from new investors. Looking ahead, we are eager to see if the data we are collecting on loan level performance by asset classes might also be used to bolster the case for CDFIs seeking greater access to the capital markets. </p><p><em>Lisa Jones is the Manager of the CDFI Fund’s CDFI Bond Guarantee Program.</em></p><hr /> <footer> <ol><li id="government"> The Secretary of the Treasury provides a 100 percent guarantee on bonds issued through the BG Program. The guarantee amount is up to $500 million under the fiscal year 2018 authorization level. Each bond has a maximum maturity level of 29.5 years. The Federal Financing Bank (FFB) purchases the bonds and the proceeds from the bond sale are used to extend credit in the form of loans to participating CDFIs. <br> </li><li id="CDFIs">Capital Impact Partners, Clearinghouse CDFI, Enterprise Community Loan Fund, Housing Trust Silicon Valley, Local Initiatives Support Corporation and Reinvestment Fund have all received AA or AA- ICRs from S&P. </li><p> </p></ol> </footer> </div>Lisa Jones2018-11-28T15:26:00ZPrograms and Initiatives60GP0|#e5ca169a-3210-4374-8024-08bc93cb9c65;L0|#0e5ca169a-3210-4374-8024-08bc93cb9c65|CDFI Bond Guarantee Program;GTSet|#52f34ab0-6f81-4fe6-b393-2715c7089532
Program Notes: A Closer Look at the FY 2018 CDFI Program and NACA Program Awards https://www.cdfifund.gov/impact/Lists/Posts/ViewPost.aspx?ID=59Program Notes: A Closer Look at the FY 2018 CDFI Program and NACA Program Awards <div class="ExternalClass0132A065772B46F5B090D7E899C9A852"><p>In mid-September, the CDFI Fund announced that <a href="/news-events/Pages/news-detail.aspx?NewsID=321&Category=Press%20Releases" target="_blank">303 CDFIs received $202.9 million in fiscal year (FY) 2018 CDFI Program and NACA Program awards.</a> As in past years, there are more fantastic statistics about the FY 2018 awardees than the CDFI Fund could easily highlight in one announcement. For example: </p><p> <b>First-time awardees:</b> Nearly one-quarter—22 percent—of the FY 2018 CDFI Program and NACA Program awardees had never previously received a Financial Assistance or Technical Assistance award. There were new awardees of all financial institution types, including one venture capital fund, nine depository institutions/holding companies, 24 credit unions, and 31 loan funds. There were also three first-time Sponsoring Entities in the NACA Program.</p><p> <b>Geographic representation:</b> The FY 2018 CDFI Program and NACA Program awardees are headquartered in 44 states, the District of Columbia, and Puerto Rico. Many CDFIs have operations in states or territories beyond where they are headquartered, however, and the awardees combined operate in all 50 states, the District of Columbia, American Samoa, Guam, Puerto Rico, and the U.S. Virgin Islands. </p><p>This year, five organizations headquartered in Puerto Rico received awards. With the recovery efforts from the effects of Hurricane Maria in 2017 still on-going, these awards should lead to increased financial services and lending on the island. Previously, the last time an organization in Puerto Rico received a CDFI Program award was in 2009.</p><p>Additionally, the proportionality of CDFI Program and NACA Program awardees by geography type closely mirrored the institution types of the application pool.</p><div class="figure"> <img class="ms-rtePosition-1" alt="Geographic Representation Table" src="/SiteCollectionImages/PublicationImages/Table%201%20%20Geographic%20Representation.JPG" style="width:550px;text-align:center;font-size:9pt;margin-right:1%;margin-bottom:0.5em;float:left;" /> </div><p> <br>       <b></b></p><p><b></b> </p><p><b></b> </p><p><b></b> <br><b>Reaching areas of Persistent Poverty:</b> The Consolidated Appropriations Act for Fiscal Year (FY) 2018 required that 10 percent of the funds awarded by the CDFI Fund under the appropriation “shall be used for awards that support investments that serve populations living in” Persistent Poverty Counties (PPCs). PPCs are defined as counties where 20 percent or more of the population has lived in poverty over the past 30 years. These counties can be found in the United States in both rural and urban areas.</p><p>For the FY 2018 CDFI Program and NACA Program award round, 89 CDFIs committed to serving PPCs and received $19.6 million in Financial Assistance awards specifically for investments in PPCs. In addition, 10 CDFIs headquartered in PPCs received Technical Assistance awards. This will be in addition to work that past awardees are already doing in PPCs. Historically, past CDFI Program awardees made more than 17 percent of their loans and investments in PPCs.</p><p> <b>Institutional proportionality:</b> Again in FY 2018, the proportionality of CDFI Program and NACA Program awardees by institution type closely mirrored the institution types of the application pool. </p><div class="figure"> <img class="ms-rtePosition-1" alt="Institution Type Table" src="/SiteCollectionImages/PublicationImages/Table%202%20Institution%20Type.JPG" style="width:560px;text-align:center;font-size:9pt;margin-right:1%;margin-bottom:0.5em;float:left;" /> </div><p> <br></p><p> </p><p> </p><p>The FY 2018 awards will have an impact on communities across the nation. I am proud of the results of this round, and I look forward to watching CDFIs bring positive change and growth to their target markets. But the CDFI Program and Native Initiatives team at the CDFI Fund is not resting easy – we are already actively preparing for the FY 2019 application round in the first quarter of 2019. Stay tuned to hear more from us soon.</p><p> <i>Amber Kuchar-Bell is the Program Manager of the CDFI Program and Native Initiatives</i></p></div>Amber Kuchar-Bell2018-11-20T21:30:00ZPrograms and Initiatives59GP0|#0760f5d5-6360-4d45-ba32-761ff5345cd1;L0|#00760f5d5-6360-4d45-ba32-761ff5345cd1|CDFI Program;GTSet|#52f34ab0-6f81-4fe6-b393-2715c7089532;GP0|#c890ec6f-810e-4c92-a8a0-1af04abbffc9;L0|#0c890ec6f-810e-4c92-a8a0-1af04abbffc9|Native Initiatives
The Cade Museum for Creativity and Invention Provides Area Youth with Steamhttps://www.cdfifund.gov/impact/Lists/Posts/ViewPost.aspx?ID=58The Cade Museum for Creativity and Invention Provides Area Youth with Steam<div class="ExternalClass3278B3B0BD014B2897E4A9B35E217DB0"><p>With help from the Florida Community Loan Fund, the redevelopment of downtown Gainesville, Florida now includes an anchor institution that will provide an important link between low-income communities and Gainesville’s Innovation District: the Cade Museum for Creativity and Invention.</p><p><a href="/Documents/Cade%20Museum%20Impact%20Story1.pdf" target="_blank">To read the full story, click here.</a></p></div>2018-10-31T18:00:00ZLocal Impact58GP0|#368ed6d6-d6bb-4a27-ad10-a1a0a87661d8;L0|#0368ed6d6-d6bb-4a27-ad10-a1a0a87661d8|New Markets Tax Credit;GTSet|#52f34ab0-6f81-4fe6-b393-2715c7089532;GP0|#80887f1a-f172-4712-9cb2-20b258166d1c;L0|#080887f1a-f172-4712-9cb2-20b258166d1c|Florida