The Equitable Facilities Fund, a nonprofit that funds charter schools for low-income students across the country, is set to price a $233.5 million deal Wednesday, its largest social school bond deal to date.
The A-rated deal is EFF’s third bond issuance with a "social" bond designation from Kestrel Verifiers. Social bonds allow investors to raise funds for projects with positive social outcomes, something EFF chief executive officer and founder Anand Kesavan said the nonprofit prioritizes above all else.
“The biggest thing is our mission. We do this work because we believe our schools are out there doing the hard work. Our school leaders, our principals, our teachers — they're the ones on the ground,” he said. “When they want to build our facility, as long as they're performing, they're doing their jobs, well, we are going to help them do their jobs.”
Kestrel Verifiers agreed with Kesavan’s assessment, having given EFF social bond designations for all three of its deals.
“Social bonds have an emphasis on the target population. Who is being served? Who's receiving this benefit?" said April Strid, lead ESG analyst at Kestrel. "With Equitable Facilities Fund, it was pretty clear they had both they had access to the education, and then they also had target population as part of their underlying criteria.”
RBC Capital Markets is set to price the deal on Wednesday for the Equitable School Revolving Fund, structured as: $124.385 million of senior national charter school revolving loan fund revenue bonds, serials 2022-2041, terms 2046, 2051, and $25 million of subordinate national charter school revolving loan fund revenue bonds, serials 2022-2041, terms 2046, 2051, 2055, for the Arizona Industrial Development Authority; along with $42.69 million of senior national charter revolving loan fund revenue bonds for the California Infrastructure and Economic Development Bank, $17.44 million for the Massachusetts Development Finance Agency and $23.985 million for the City of Albany Capital Resource Corporation.
The EFF last issued $122.71 million and $48.115 million in August 2020. Spreads then ranged from plus-37 on a five-year 5% coupon bond to plus-89 on a 4% 30-year maturity spread to triple-A benchmark yield curves.
The debt-coverage ratio is
The risk of default in the sector is about 4%, but should one of the schools default, EFF has a 47% debt coverage ratio cushion to repay investors. None of the schools covered by EFF have defaulted.
Having an enhanced model like EFF’s continues to provide a lot of value to investors, according to Kesavan.
“Especially when spreads are low, investors are already getting a low yield and a relatively low spread, you might as well invest in a diversified pooled group of loans because now you don't have to do diligence on every underlying school, every underlying issuer,” he said.
Investors, he said, have told EFF they like the charter school sector but would prefer for an organization to help them with the diligence.
“To an institutional investor, it's really highly valuable, not just a valuable credit and yield, but also a valuable service,” Kesavan said. EFF provides investors with ongoing monitoring of the schools’ performance. “It just makes a lot more sense for an investor to invest in EFF rather than trying to find the schools themselves."
