Sims Closes Tax-Exempt Draw Down Bonds for Charter School Land Purchase and Construction
Aristoi Classical Academy (‘Aristoi’) is a public charter school located in Katy, Texas, serving approximately 650 students in grades K-10. Aristoi reached an agreement to purchase 22.16 acres of real property to construct a new campus to be built in multiple phases. Aristoi planned to begin construction of Phase I in August of 2016, with the new classrooms opening in the 2017-2018 school year. This initial phase will house grades 5-12.
Aristoi was originally founded as a first generation Texas charter school named West Houston Charter School in 1996. The school experienced decreases in enrollment and encountered financial difficulties in 2005, leading to a payment default on its Series 2002 bonds. In 2006, the board voted to transition from a ‘creative arts’ to a ‘classical education’ focus. After switching to a classical education model and bringing in new leadership at the administrative and board levels, Aristoi began to grow enrollment and recover financially. In 2013, Aristoi completed a tender offer for its existing bonds and was able to reduce the outstanding principal amount by over 50%. By May of 2015, Aristoi had accumulated sufficient cash to redeem its remaining bonds, leaving the school debt free.
In the 2014-2015 school year, enrollment at Aristoi increased to over 500 students, and the school found itself quickly outgrowing its facilities. In order to accommodate the growth, the school began pursuing plans to build a new campus and in late 2015, located a tract of land for a new school within two miles of its current campus. With a scarcity of potential sites in Katy, Texas large enough for the new campus, the school negotiated a purchase agreement to secure the selected property. The agreement required the school to purchase the land by April 2016.
In November of 2015, Sims began a search for financing to purchase the site prior to expiration of the purchase agreement. Sims was able to find an institutional investor interested in providing financing for the land acquisition and for construction of the new campus scheduled to begin in September of 2016. Sims structured a draw-down bond issue, allowing the school to close on the land acquisition immediately, while providing a commitment to fund construction of the new campus as funds are needed. Additionally, by allowing the borrower to draw funds as needed during construction, as opposed to paying interest on the full par amount of the bond issue at closing, the draw-down structure provides significant interest savings during the construction period as compared to traditional bond financing structures.
The Series 2016 bonds closed on March 17, 2016. The bond issue consisted of $11,130,000 of Tax-Exempt Series 2016A bonds and $100,000 of Taxable Series 2016B bonds. The initial draw of $4,850,000 provided funds to acquire the site and fund certain issuance expenses related to the Series 2016 bonds. With this structure in place, Aristoi is on track to begin construction of its new campus this fall and to complete construction prior to the 2016-2017 academic year.