The CDFI Bond Guarantee Program (BGP) was created by Congress in the Small Business Jobs Act of 2010. This innovative federal credit program offers credit-worthy, certified CDFIs access to affordable long-term capital. Unlike other CDFI Fund programs, the CDFI Bond Guarantee Program does not offer grants, but instead is a federal credit subsidy program, designed to function at no cost to taxpayers. The bond proceeds are debt instruments that must be repaid. Through FY2014, $525 million has been guaranteed in bonds through the CDFI Bond Guarantee Program.
How does the BGP work?
Under the BGP, Qualified Issuers apply to the CDFI Fund for authorization to issue bonds. Each bond issuance must be worth a minimum of $100 million. The CDFI Fund provides a 100 percent guarantee on these bonds for up to $1 billion per year.
The U.S. Department of the Treasury underwrites the Qualified Issuer as well as each CDFI that is part of an application. After determining that all parties are creditworthy, the Treasury guarantees the bonds for a term of up to 30 years. The Qualified Issuer sells the Treasury-guaranteed bonds to the Federal Financing Bank, which is tasked with ensuring efficient federal financing. Bond proceeds are drawn down over a 60-month period to extend credit to CDFIs for community development purposes, and the Qualified Issuer is responsible for using the proceeds from the bond sale to extent credit to other CDFIs.
How OFN makes the BGP work for more CDFIs:
OFN has taken an innovative approach to the BGP by applying for large multi-party bonds. Now, smaller CDFIs—CDFIs that are just as creditworthy as their larger colleagues but who on their own could not borrow $100 million—are banding together to take advantage of more affordable capital. As part of the multi-party bond, smaller CDFIs are required to apply for a minimum of $10 million of the total $100 million application. OFN’s FY15 multi-party bond involved seven lenders who will draw down from $10 million to $28 million each. These funds will be used to spur economic growth in Appalachia, metropolitan Chicago, Native American tribal lands, areas of New Jersey impacted by foreclosure and Super Storm Sandy, and areas in western Pennsylvania devastated by the decline in manufacturing.
Why it’s important to advocate for the continuation of the BGP:
Eligible CDFIs who are financed by the program may also use the capital to extend credit to other community development borrowers who serve as Secondary Borrowers. Through the program, CDFIs are able to drive substantial capital to distressed communities with long-term credit at below-market interest rates.
OFN continues to advocate for the BGP. For FY17, OFN is requesting $1 billion in guarantee authority. This is an increase from FY16's $750 million in guarantee authority.
The BGP financed projects are well suited for long-term affordable debt capital. Some of the financed projects to date are:
Washoe Travel Plaza—Clearinghouse CDFI issued a $5.6 million loan for the development of the Washoe Travel Plaza on Native American reservation land. This development will create approximately 125 jobs in a low-income tribal community in Nevada.
TEAM Academy Charter School (TEAM)—Enterprise Community Loan Fund committed $6 million to the construction of a new elementary and middle school facility in Newark’s Central Ward by TEAM. The new facility is expected to open in August 2016 and will become the permanent site for TEAM’s 3rd elementary school and 4th middle school, serving approximately 560 elementary and 400 middle school students at full enrollment.