Lancaster Pollard helps health care, senior living, affordable housing and private education organizations expand and improve their services by providing financial advice and financing solutions. Lancaster Pollard’s services enable hospitals, assisted living facilities, nursing homes, rural housing properties and private schools to develop the financial plans and secure the funding necessary to continue to serve their communities and lets them focus on what’s truly important –their residents, their patients, and their students.
Lancaster Pollard
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Home > News > Press Archive > 12-18-07-Tri-City Baptist

Church's refinance funds college dorm acquisition/construction

Property Type: Church, day care, school and college
Location: Tempe, Ariz.
Project Objective: Refinance
Financing Amount: $5.2 million
Source of Funding: Tax-exempt bonds enhanced by an “A+/A-1” letter of credit

Background and Challenges
Tri-City Baptist Church is an independent organization that has served the Phoenix area and the Western United States for more than 35 years. Currently located in Tempe, Ariz., Tri-City has outgrown its current location and is in the process of relocating to nearby Chandler. To serve that purpose Tri-City needs to construct a new facility to support its multiple missions of worship, education, day care and ministry.

Financial Solution
Churches are excluded from issuing tax-exempt financing, but since the first phase of the project was to refinance debt for the acquisition and construction of a college dormitory, tax-exempt funding was seen as an option. Given the 501(c)3 status and the mission of the school, the local development authority agreed to serve as a conduit for the tax-exempt issue. Throughout the process, Lancaster Pollard ensured all parties’ comfort with the tax-exempt status by consistently and effectively communicating the bonds’ purpose.

Lancaster Pollard explained Tri-City’s credit characteristics to several letter of credit banks, obtaining multiple competitive offers. The selected letter of credit fee is less than 1 percent. In addition, Lancaster Pollard bid a 30-year, floating-to-fixed-rate swap to amortize with the bonds, effectively fixing their rate at 3.57 percent. Tri-City's new all-in cost of capital is less than 5 percent and fixed for 30 years; the refinanced debt had carried a variable interest rate of prime plus 0.5 percent, or 7.75 percent at refinancing.

Outcome
Lancaster Pollard continues to work with Tri-City on its second phase of construction: building the main worship and classroom building. The second phase will be financed through a mix of taxable and tax-exempt funding, with Lancaster Pollard applying a componentization strategy to maximize tax-exempt eligibility by categorizing dual-use space.