OFN Closes $100 Million CDFI Bond Guarantee Program Issuance
Andrea Longton
OFN is pleased to announce that we closed a $100 million CDFI Bond Guarantee Program (BGP) issuance on November 4, 2019. We are proud to have partnered with three CDFIs around the nation that continue to dedicate themselves to driving affordable capital into the low-income communities they serve:
- Community Loan Fund of New Jersey, Inc., headquartered in New Brunswick, New Jersey, closed a $25 million bond loan to finance rental housing, charter schools, daycare centers, not-for-profit organizations, small businesses, and commercial real estate in low-income and underserved areas in New Jersey.
- Federation of Appalachian Housing Enterprises, Inc., headquartered in Berea, Kentucky, closed a $20 million bond loan to finance affordable rental housing, healthcare facilities, senior living facilities, not-for-profit organizations, small businesses, and commercial real estate in the greater Appalachian region.
- Greater Minnesota Housing Fund, headquartered in St. Paul, Minnesota, closed a $55 million bond loan to finance affordable rental housing projects in Minnesota.
When CDFIs lack access to long-term capital, the communities they serve lack access to long-term capital.
With few sources of capital offering maturity dates more than 10-15 years—namely the BGP, Federal Home Loan Bank, USDA Community Relending Facility, and capital markets—the main appeal of the BGP is that it is long-term capital up to 29.5 years at low fixed rates, with a look and feel similar to a secured line of credit.
Long-term sources of capital are critical for CDFIs to make meaningful inroads into low-income and low-wealth communities. When CDFIs lack access to long-term capital, the communities they serve also lose out on substantial investments in their neighborhoods.
BGP-funded loans benefit from two sources of affordability:
- Long-term loan availability means that a daycare center owner may repay her debt over a longer time period, which means lower cash payments month over month. Lower cash payments means that the daycare center breaks even more easily and may stretch its limited resources further. (Imagine stretching your paycheck further with a 30 year mortgage rather than a 5 year mortgage.)
- CDFIs deepen affordability by offering loans at low interest rates, resulting in less expensive monthly debt service payments for the daycare center. CDFIs will often offer the same rates on a long-term loan as they would on a shorter-term loan, whereas commercial banks usually add a maturity premium to the borrowing cost, further increasing debt service payments each month. (Imagine a 3% mortgage rate versus a 6% mortgage rate.)
BGP Impacts
As CDFIs have access to longer term capital at greater volumes, they broaden their audience to larger borrowers. For instance, whereas a CDFI may have had a maximum loan size of $3 million before BGP and could only lend to 10-unit affordable housing properties, with BGP it could now consider increasing its maximum loan size to $6 million and lending to 30-unit affordable housing properties.
As CDFIs lend to larger borrowers, they are able to further amplify their impact (in jobs created, units of affordable housing, number of small businesses, and so on) through economies of scale, relationships with more sophisticated partners, and deeper reach into community development and impact investing environments.
Interested in learning more about BGP for your CDFI? Please reach out to Andrea Longton, Senior Vice President of Financial Services at OFN, at [email protected] or 202-618-6101.