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.
