The Equitable School Revolving Fund LLC., a first-of-its-kind loan pool for charter schools, will hit the market next week with $300 million of A-rated social bonds.
The deal, set to price Wednesday, marks the sixth borrowing for the fund, said Equitable Facilities Fund CEO and founder Anand Kesavan.
“Our plan all along, which we’ve communicated to investors, is we plan to do one every year, that’s our cadence,” Kesavan said.
Equitable Facilities Fund
The team planned a number of one-on-one meetings with investors ahead of the deal, he said. Many investors are eying the debt but also taking advantage of the fund’s information and data on the charter school sector generally, Kesavan said.
“Charter schools are a lot of work,” he said. “We tend to share our perspective on the charter school market. Part of our mission is to help the charter school sector have more transparency.”
As part of its portfolio management, the fund offers best-practices training and seminars to schools and early intervention to manage any issues, according to the investor roadshow.
The firm has a robust vetting process and only offers loans to high-performing and financially stable schools, Kesavan said. That’s helped to keep the default rate at zero, he said.
Established in 2017, the EFF, is a 501(c)(3) non-profit corporation created to make low-interest loans to public charter schools across the country. The EFF is the only member of the Equitable School Revolving Fund.
Proceeds will be used to make new loans and reimburse loans already made within the ESRF.
The portfolio has 90 loans to 80 charter school organizations and obligated groups across 23 states. The pool has a balance of more than $1.5 billion that’s pledged to $1.3 billion of senior-lien bonds plus debt reserve funds, according to the investor road show.
The financing is divided into two offerings: $200 million that will price through the Arizona Industrial Development Authority, which will offer loans to schools across the country, and $100 million that will price through the California Infrastructure and Economic Development Bank, which will fund loans only to California schools.
The borrowing is structured as serial bonds with 30- and 35-year maturities and five-year bullet maturities, according to the investor roadshow.
Siebert Williams Shank & Co., LLC is senior underwriter. PNC Capital Markets Inc. is co-senior and RBC Capital Markets and Stephens Inc. round out the syndicate. Orrick, Herrington & Sutcliffe LLP is the fund’s bond counsel, and Lamont Financial Services is financial advisor. Kestrel has certified the bonds as social.
The bonds carry A ratings from S&P Global Ratings, the only agency to rate the debt, with a positive outlook. The positive outlook “reflects the trend of ongoing diversification of the loan portfolio as loans are added to the pool each year” which strengthens the pool’s ability to withstand default stress, analysts said.
The fund’s structure as a nonprofit with no link to a government entity is a limiting factor, S&P said.
The road show said the loan pool can withstand a 38.4% default rate and still make debt service on the senior bonds assuming loan repayment recoveries of at least 46%, according to the road show.
“It’s such a massive amount of shock that we can withstand it’s almost not logical,” Kesavan said.
