Fundraising for Renovation Projects

When it comes to completing major capital projects on campus, schools typically rely on fundraising and grants as the anchor funding sources. For a prestigious arts school in NYC, launching a fundraising campaign was important to funding $15 million in renovations to its main performance hall.
 


"For a prestigious arts school in NYC, launching a fundraising campaign was important to funding $15 million in renovations to its performance hall."

Running a Successful Campaign

The school conducted a very successful fundraising campaign. Between the grant award and pledged donations during the silent phase of the campaign, 80% of the total project amount was committed before it went public.

Evaluating Options to Monetize Pledge Receivables

Although fundraising goals were nearly achieved, the donations were projected to come in over a 6-year window. The school decided the best option was to pursue external financing options to bridge the gap and mitigate cash flow constraints during the construction period. However, the school's covenant requirements on its bond and the grant award limited its ability to pledge real property or tuition revenues as collateral on the project.

First American's Financing Solution

First American took an innovative approach to solving the school's challenges by developing an unsecured term loan that allowed the school to break ground by aligning debt service to its pledge receivables schedule. In addition, the school was not required to disrupt the existing treasury relationship with its primary bank.





"First American developed an unsecured term loan that aligned debt service to the pledge receivables schedule. As part of the term note agreement, the school had the ability to utilize an open line of credit to cover construction outflows."

Utilizing a A Line of Credit

As part of the term note agreement, the school had the ability to utilize an open line of credit to cover construction outflows and was free to pay down the balance as donations were still coming in.
 

Mitigating Risk with a Rate Lock

The school also took advantage of First American’s unique forward rate-lock product which was executed three months prior to the start of construction. The rate lock allowed the school to fix its rate 15-months ahead of terming out the line of credit balance.

Accelerated Results & Interest Savings

This combined approach of a line of credit facility with a structured term note accelerated the school’s ability to complete the major renovation. The upfront costs were bridged to the school’s pledge receivables schedule reducing cash outlay by several million dollars.

By utilizing a forward rate lock, the overall interest expense avoidance was over 100 basis points when compared to traditional variable finance vehicles.

Overall, the new performance hall had a significant impact on student and faculty recruitment.
 



"This combined approach of a line of credit facility with a structured term note accelerated the school’s ability to complete the major renovation. By utilizing a forward rate lock, the overall interest expense avoidance was over 100 basis points."