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YES Prep Launches Innovative Financing Solution To Fund Growth

April 07, 2010 by Jeremy Jones

HOUSTON, April 7, 2010—YES Prep Public Schools today announced the closing of an innovative $22.1 million bond offering which uses a federal bond program authorized under the stimulus bill to reduce interest costs by tens of millions of dollars compared to traditional bonds. This financing has national implications for charter school facility financing and will also enable YES Prep to grow to 10,000 students in Houston within the decade. YES Prep is the first charter school system in Texas to close a bond offering of this kind.

“We are overcoming one of the charter movement’s key challenges: paying for facilities,” said YES Prep CEO Chris Barbic. In most states, including Texas, even though charter schools are public schools, they do not receive facility funding or have taxing authority to raise additional revenue.

“This has left charter schools with limited options for facility funding and expansion; they must either raise private philanthropic support, or pursue conventional financing opportunities,” says Drew Masterson, managing director at FirstSouthwest who represented YES Prep in the transaction.

Currently, the average rate in charter school bond issues is approximately 6.5%. Under the terms of the offering structured by Capital One Bank, YES Prep will receive $22.1 million and pay a net interest rate of less than 1%. The lower rate translates into interest savings of $28 million over the term of the bonds.

To secure the financing, Capital One Bank maximized the use of both Qualified Zone Academy Bonds (QZABs) and Qualified School Construction Bonds (QSCBs). The offering is possible because of a new provision in the federal stimulus bill passed in April 2009. And, unlike a traditional 30-year bond, these bonds have a fifteen year term which enables YES Prep to retire the debt in half the time of many school-bond issues.

“We are thrilled to see YES Prep, an organization known for its academic performance, leading the charge on innovative and cost-effective expansion strategies," said Kevin Hall, CEO of the Charter School Growth Fund, a Colorado-based social venture investment fund that supports growing charter school networks across the country.

The low-cost financing allows more than 99% of future dollars raised from YES Prep’s critically important community of supporters to go directly to student education and programs, rather than debt service. YES Prep’s growth plan calls for an additional $16 million in private donations to leverage this bond issue and help the organization achieve sustainability.

“This bond issue paves the way for our current and future donors to get the highest possible return on their investment and help thousands more low-income students pursue their dreams of college success,” said Joe Greenberg, Chair of the YES Prep Board of Trustees.

“This funding is the result of a close collaboration between YES Prep and the local bankers at Capital One Bank. Their understanding of bond purchases, tax credit projects and federal resources played a crucial role in helping us develop a facility financing solution that both addressed our needs and pushed our organization forward,” Greenberg added.

“At Capital One Bank, we are proud members of the Houston community, and we have seen first-hand the results of the great work YES Prep is doing for our youth,” said Bill Herrington, Capital One Bank’s Commercial Banking Executive for South Texas. “We share YES Prep’s belief that a quality education is the most important determinant of future success for children and youth. We’re pleased to provide an innovative and prudent solution to meet their funding needs, as they seek to expand their mission.”

For more information:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aAJf6wxjcYo0 

http://www.chron.com/disp/story.mpl/metropolitan/6947087.html

About Capital One

Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A. and Capital One Bank (USA), N. A., had $115.8 billion in deposits and $212.0 billion in total managed assets outstanding as of December 31, 2009. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients. Capital One, N.A. has approximately 1,000 branch locations primarily in Texas, Louisiana, New York, New Jersey, Maryland, Virginia, and the District of Columbia. A Fortune 500 company, Capital One trades on the New York Stock Exchange under the symbol "COF" and is included in the S&P 100 index.

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