Facility Refinancing Guide to Replacement and Reporting | Local Initiatives Support Corporation

Once a school has closed its refinancing, it is contractually obligated to make principal and interest payments for the life of the financing. Loans will typically require monthly principal and interest payments, although they can be structured with an interest-only period prior to commencement of amortization. Bond issuances are typically structured with annual principal payments and semi-annual interest payments, and they can also be structured with an initial interest-only period.

Both loans and bonds will require that the borrower meet certain reporting and financial performance covenants. Reporting covenants typically include the school’s provision of annual audited financial statements, quarterly unaudited financial statements, and annual reports on enrollment and academic performance. Borrowers may also be required to share state report cards and authorizer reports and give notice of certain material events, such as non-compliance with charter terms or a change in management.

Financial covenants include certain restrictions the school agrees to and performance criteria the school must meet on an ongoing basis in order to avoid a technical default on the loan or bond. These covenants can include limitations on additional indebtedness or encumbrances on the property being financed. They also typically specify other leverage, liquidity, and debt service coverage ratios that the school must meet on an annual basis.

If a school decided that short-term financing was the best refinancing option, it will have a principal balloon to refinance again at maturity of the debt. Schools can employ Tab 11, Refinancing Sensitivity Analysis, to project if they will be able to meet lender debt service coverage ratio requirements for takeout financing of this balloon given different assumptions regarding the interest rate and amortization period for the takeout financing. If this table shows strong debt service coverage ratios well above 1.2x in this table, even with high interest rates and short amortization periods, schools can have greater confidence that they will be able to successfully refinance the principal balloon at maturity.

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Legal Disclaimer:

Nothing in this material should be construed as investment, financial, brokerage, or legal advice. Moreover, the facts and circumstances relating to your particular project may result in material changes in the processes, outcomes, and expenses described herein. Consult with your own professional advisors, including your financial advisors, accountants, and attorneys, before attempting to consummate any transaction described in this material.