Buck Financial Blog

In August 2019, Uplift Education issued just over $91 million in bonds, consisting of about $24.8 million of tax-exempt bonds and $66.3 million of taxable refunding bonds.  Arlington Higher Education Finance Authority was the issuer, Robert W. Baird & Co. served as underwriter, Quarles & Brady served as underwriter’s counsel, Winstead PC served as borrower’s counsel, and McCall Parkhurst served as bond counsel.  Buck Financial Advisors has served as FA to Uplift since 2009.

Uplift was created in 1996, and currently operates 40 schools on 20 campuses and serves about 20,000 students in the DFW metroplex.  All of Uplift’s high schools are International Baccalaureate authorized for the rigorous Diploma Program, and almost 100% of its middle schools are IB authorized.  Uplift Lee also co-locates with Lee Elementary in the Grand Prairie ISD in a highly innovative partnership that actually serves kids.  This partnership has been so successful that in August 2019 Uplift and Grand Praire will open their second partnership school, Uplift Lee Secondary.

The new-money bonds were used to fund construction of a new facility for Ascend Primary, preliminary work for Elevate Primary, acquire previously leased land for Summit Preparatory, and various other projects on existing campuses.  The All-in TIC on the tax-exempt bonds was 3.33% for a 35-year final maturity, which is just insanely low.  These bonds were sold the week in which the yield curve first inverted, causing quite a tumble in the stock market.  Volatility ruled that week, with the 10-year Treasury bond yield bouncing down to 1.60% early in the week before raising back to about 1.78% on the day of pricing.  So did a $1 billion Dallas – Ft. Worth taxable revenue issue leave a wake to maneuver around.

The taxable refunding bonds were used to refinance the callable bonds of Uplift’s Series 2012 issue.  The taxable nature of the refunding bonds is due to the loss of tax-exempt advance refunding capabilities in the 2017 tax reform act.  We had been tracking the potential for the refunding for a while, and as recently as the week prior to the sale were somewhat ambivalent about it.  But, with the crazy market reaction to the inverted 2-10 year yield curve, the benefits of the refunding escalated quickly, resulting in just under 13% present value savings.  Annual savings total approximately $575,000 which will be used in the classroom instead of going to investors.  The Boy Scouts are right – be prepared!  We were, and were able to take advantage of the market to benefit Uplift.

This issue marks just the latest in a series of issuance by Uplift Education where the bonds happened to be sold in a very low interest rate environment.  We aren’t quite sure why this seems to happen most years, but if you are considering entering the bond market, you might want to check with Uplift in the future (or me) to see when they plan to go to market.  There are at least a couple of other items Uplift also seems to get right concerning how to best educate students, and you might want to check those out, too!

Congratulations to Uplift Education, and the students and families they continue to serve so well.

In August 2019, Great Hearts America – Texas completed its first capital markets raise, a $93.350 million bond issue through the Arlington Higher Education Finance Corporation.  The purpose of the offering was to refinance approximately $60 million of bank and subordinate debt that was used to construct four campuses, and provide about $30 million for the construction of the first phase of two new schools in San Antonio and Fort Worth.  Robert W. Baird & Co. served as underwriter, Quarles & Brady served as underwriter’s counsel, McCall Parkhust as bond counsel, and Warren Charter Law served as borrower counsel.  Buck Financial Advisors has served as GHAT’s Financial Advisor since 2014.

GHAT opened its first school in Texas in 2014, and as of the 2019-2020 school year operates eight academies consisting of three Upper (6-12 or 7-12) and five Lower (K-5 or K-6) on 7 campuses in San Antonio and Fort Worth.  Texas is the second state served by its parent, Great Hearts America, which also operates 22 schools in Arizona.  GHAT currently serves about 4,600 students and the capacity financed with this issue will allow GHAT to grow to over 7,200 students.  It secured an investment grade rating from Moody’s in Spring 2019, which qualified GHAT for the Texas Permanent School Fund Bond Guarantee Program.  As such, bonds carried a Baa3 underlying rating and a Aaa rating based upon the PSF guarantee.  To date, this issue received one of the lowest spreads to the MMD of any charter school PSF issue.  The All-in TIC was 3.37% for a 35-year bond maturity – Hello!

GHAT used a strategy developed by Buck Financial Advisors to use short-term, easily refinanced debt beginning in 2014 for construction, and for projects in 2016, 2017, and 2018.  These loans had a maturity of about 5 years each, and were callable beginning in year two.  The purpose of this strategy was to allow an efficient, low-cost exit from the original financing due to favorable call provisions versus what the high-yield bond market would have required had that strategy been pursued.  On over $60 million of debt outstanding, GHAT paid a call “premium” of about $330,000, and had only a single escrow for one year which required a similar amount of negative arbitrage, together totaling about 1% of the par amount of the refinanced debt.  This compares to negative arbitrage of 7-12% (or more) on typical advance refundings, or short-call premiums of 4% or greater for high-yield deals beginning in year 3 or longer.  This strategy saved GHAT millions over a typical high-yield bond issue had that approach been utilized early on.

In addition to delivering a quality education, GHAT diligently remained focused on those items which would most quickly help the bond rating achieve investment-grade status.  Thus, only 5.5 years after commencing operations in Texas, GHAT was able to qualify for the Texas PSF.  That is quite a feat for a fast-growing CMO, and a testament to the quality of the management team in Texas and at the parent Great Hearts America.

Congratulations to the students and families of Great Hearts America – Texas!