CSFA’s Charter School Pooled TRANs (ASAP Program)
A transparent, low-cost borrowing option to help charter
schools manage the State’s apportionment deferrals
How will the State’s deferrals impact my charter school’s cash position?
- Charter schools are expected to receive only 64% of their State apportionment payments for 2020-21, with deferrals starting in February 2021 and continuing through June 2021. The apportionment deferrals are expected to continue for 2021-22
- Unless a charter has significant cash reserves, the deferral of 36% of State aid will create an unprecedented need for external, short-term borrowing to maintain financial liquidity by early 2021
What is CSFA’s Advances on State Aid Payments Program?
- Tax and Revenue Anticipation Notes, or TRANs, are a form of short-term debt used by school districts to even out temporary cash deficits caused by the State’s deferred apportionment payments
- Understanding that charter schools are not permitted to issue debt like TRANs, CSFA created the Advances on State Aid Payments (ASAP) Program to provide charter schools with simple, timely and fully transparent access to low-cost working capital funds
- CSFA will issue a pooled TRAN to investors and use the TRAN proceeds to make loans to charters on the same terms; in turn, charters use these loans as a cash bridge over the February 2021 to November 2021 deferral period
- Loan proceeds will be available in March 2021 and fully repaid by early January 2022
- The charter’s deferred apportionments will be accessed directly by the State Controller to automatically repay the loans with no future action required by the school
How will the ASAP Program be a low-cost option for charters?
- The ASAP Program was designed to offer charter schools and charter management organizations (CMOs) a lower cost alternative to bank lines of credit and the sale (factoring) of apportionment receivables
- The following factors will provide participating charter schools with a low-cost loan:
- A “loan-loss” reserve fund will provide investors in the pooled TRANs with additional security, thereby increasing the S&P credit rating to a targeted SP-1 and markedly lowering the interest rate. (The reserve fund will be capitalized by one or more Credit Enhancement for Charter School Facilities grant awards from the U.S. Department of Education)
- Pooled TRANs decrease upfront fees by combining the loans of many charters at one time to create economies of scale
- Pooled TRANs aggregate the loans of many charters into a larger offering (without creating a joint obligation) to attract more investors and increase competition to lower interest costs
- An experienced financing team is “pre-assembled” to save the time and effort necessary for a charter school to execute its own short-term borrowing
Are there additional benefits of the ASAP Program?
- CSFA is a governmental entity governed by a three-member board comprised of the elected State Treasurer, the elected State Superintendent of Public Instruction and the Director of Finance appointed by the Governor
- CSFA has served as conduit bond issuer on behalf of charter schools to improve access to the capital markets for over 10 years. CSFA’s low-cost fee structure and revenue intercept mechanism has made it a prominent conduit debt issuer for charter schools throughout the state, with 85 transactions totaling $1.58 billion to date
- CSFA’s state-level intercept of TRAN debt service will streamline repayment for charters and increase investor security
- The pooled TRANs will be supported by the State Treasurer’s Office (STO) which has expertise in overseeing all bond issuances of the State
- Financing documents will be standardized for consistency, and specific directions for board action will be provided to charters
- Charters will not be required to prepare monthly cash flows to determine a projected cash deficit. The loans will be sized using the schedule of deferred apportionments for FY 2020-21
When can charters get cash from the ASAP Program?
- With the State’s apportionments deferred from February through June 2021 to July through November 2021, we expect most charter schools will experience cash deficits by April/May 2021
- The ASAP Program’s first series of pooled TRANs are expected to close and fund loans to charters by March. CSFA anticipates offering additional series of pooled TRANs in May or June. Charter schools will have the option to participate in any one of these series. Please see below the key dates for the March 2021 ASAP Program TRANs
|ASAP Program Activity||Dates|
|Application period for charters||Until Oct. 30|
|Loans sized and financing documents prepared||October to mid-January|
|Charter school board approvals||by Feb. 5|
|CSFA Board approval||week of Feb. 8|
|First Principal Apportionment certified by CDE||week of Feb. 15|
|Preliminary Official Statement posted||week of March 1|
|Interest rates determined||week of March 8|
|TRAN closing and loans funded||by March 31|
What are the minimum requirements to apply to the ASAP Program?
- Charter schools that meet all of the following minimum requirements are encouraged to apply for an ASAP Program working capital loan:
- Operational for the full FY 2019-20 academic year
- California non-profit public benefit corporation/limited liability company duly incorporated/formed in good standing under State laws
- Organization described in Section 501(c)(3) of the Internal Revenue Code and exempt from federal income tax under Section 501(a) of the Code
- School is in good standing with its charter authorizer and is in compliance with all items of its charter at the time of application submission
- For a charter school to participate in the series of pooled TRANs secured by the loan-loss reserve fund, it will be required to certify that it satisfies one of these four criteria:
- Located in a school district and/or county where at least 50% of students have not met the State standard for proficiency in either math or language on the state assessment
- Located in a school district and/or county where at least 15% of public schools have been identified for improvement or corrective action
- Located in a school district and/or county with 60% or more of the student population is eligible for free or reduced-price meals (FRPM)
- Fifty percent or more of current or projected students enrolled at the charter school are eligible for FRPMFifty percent or more of current or projected students enrolled at the charter school are eligible for FRPM
Who is involved with the ASAP Program?
- The financing team selected by CSFA and the STO have over 30 years of K-14 TRAN expertise and competitive fees
- Issuer: California School Finance Authority
- Issuer’s Counsel: Office of the State Attorney General
- Agent for Sale: State Treasurer’s Office
- Municipal Advisor: Montague DeRose and Associates
- Note Counsel: Orrick, Herrington & Sutcliffe
- Disclosure Counsel: Nixon Peabody
- Joint Sr. Managing Underwriters: RBC Capital Markets & Citigroup
- Interested Parties: CA Dept. of Finance, CA State Controller’s Office, CA Dept. of Education
What are the upfront costs and expected interest rates?
- There is no cost to apply to the ASAP Program
- We expect the ASAP Program to offer charters a total borrowing cost (upfront costs plus interest) which is very competitive with other working capital financing options
- Interested charters should contact the financing team to request a loan sizing with an estimated total borrowing cost
Who can I contact with questions?
|California School Finance Authority||Montague DeRose||RBC Capital Markets||Citigroup||Orrick|