Central Penn University is undertaking a non-profit conversion by requesting new county funding.state

Central Penn University is undertaking a non-profit conversion by requesting new county funding.state


Faced with a major financial hurdle, Central Penn College changed its request to Cumberland County for financial assistance in converting schools into nonprofits. June.

The current plan, presented to the county commissioner Wednesday afternoon, states that the county will contribute $ 1.4 million to the Debt Reserve Fund to increase investor confidence in issuing the bonds needed to finance a complex series of transactions. Central Pen is thinking. Converting a university into a non-profit organization.

This proposal significantly reduces the county’s risk compared to previous demands, and the university is now in debt reserve rather than the county’s unlimited obligation to replenish the central pen’s debt reserves that the university had. Requesting a fixed grant to gold sought in June.

However, attempts to coordinate the ongoing transactions over the past six weeks have failed due to misunderstandings and general turmoil, university and county officials said Wednesday.

“This 10-minute speech turned out to be more informative on this issue than what I was trying to get from the university,” Vince DiFilippo told President Linda Fedrizzi-Williams of Central Pen University. “I received certain information one day, but it will change the next day.”

Commissioners and their staff must also work through the semi-independent financial institution Cumberland County Industrial Development Bureau, with a clear lack of clarity as to which hand handles which part of the transaction. did.

“Sharing information was horrifying,” said county solicitor Keith Brennemann, who explained that he had received a document for legal review that was already out of date due to a sudden change.

Shawn Farr, CFO of Central Pen University, said:

As Farr explained, schools are in “scramble mode” to complete non-profit transactions in the face of tight regulatory deadlines and deteriorating financial conditions.

“Universities have lost money in the last few years,” Farr said, with a budget of $ 18 million and a budget of $ 2 million this year.

“Loss revolves around a decline in housing enrollment and student enrollment,” Farr said. “It was exacerbated by the pandemic. It existed before the pandemic, but obviously the pandemic didn’t help.”

Becoming a nonprofit gives universities access to state and federal funding that is not available to commercial organizations, and allows universities to raise funds for dedicated funds.

conversation

Fedrizi Williams said Central Pen’s current status as a for-profit university is somewhat unique given that the company is wholly owned by the employee ownership scheme. ..

According to Fedrizzi-Williams, university faculty and staff requested the government to convert schools into non-profit organizations in 2016, and in 2018 Central Pen granted permission from the accreditation body of the Higher Education Commission to do so. I got it.

Since then, the university has been looking for ways to buy the remaining employee shareholders, leading to the current plight.

As explained by Farr, Fedrizzi-Williams, and Robert Kelly, Chairman of the Board of Directors of Central Penn, the process of transforming Central Penn into an economically viable nonprofit is fairly complex.

Universities are looking for debt issued through CCIDA. With the support of CCIDA, bonds will be tax exempt and will be more attractive to investors. Total bond issuance is expected to range from $ 16 million to $ 16.5 million.

However, the proceeds of the bond will go to Central Penn Properties Benefit LLC, a financial instrument managed by the Social Enterprise Group, a non-profit foundation based in Elizabeth Town. This LLC uses the proceeds of the bond to buy real estate in Central Pen. The proceeds from the sale of the property will be used by Central Pen to purchase ESOP’s stake, and the commercial organization may merge with the newly established non-profit organization Central Pen 1881.

The non-profit university then signs a lease agreement with Benefit Corporation to use the university campus. There, university leasing fees are fixed to the administrative fees charged by the Social Enterprise Group, in addition to Benefit Corporation’s debt repayment.

Under that contract, when the deposit is fully paid off, Central Pen Property Benefits will transfer ownership of the campus to a non-profit university.

This arrangement is necessary, as university officials explain, as the new non-profit university has no credit history. Borrowing to a Social Enterprise Group that has previously completed similar transactions makes bond offerings more attractive to investors.

However, these investors are aware that bond repayment depends entirely on the ability of the new nonprofit to pay the lease payments.

“They will be unrated bonds that are essentially junk bonds,” Fedrizzi-Williams said.

Bond underwriters are more attractive if the university has a debt reserve that allows them to lease and repay the bond for the first three years, which is considered the most risky period if the university is in short supply. I advise you that it may be. The reserve is managed by Wilmington Trust.

The $ 1.4 million reserve bond payments arise from bond income. The university’s affiliated scholarship fund also makes donations from the donations. And Central Pen is asking the county to donate its final work.

You don’t need to fund until 2023 when leasing and bond payments begin, but underwriters need some specific commitment to enter the bond market.

“The commitment letter is what we need. It doesn’t need to be funded yet,” Fedrizzi-Williams said.

According to university officials, using an intermediary company to take advantage of the university’s real estate is necessary to maximize the available funds.

“Current universities are more valuable as real estate than going concern,” said Fedritzi Williams, who wasn’t interested in lending real estate directly to the university as collateral.

Commissioner Jean Foski asked if a social enterprise group could fund it, but the director of the organization, James Reeve, said it wasn’t set up that way, but rather a lease and administration fee to the university. Said to charge. Bond payments.

“Our role is strictly to act as a financial supporter,” says Reeve.

County funding

Broadly speaking, the county commissioner agreed that it was worthwhile to support the Central Pen transaction, but the question is which money to spend.

DiFilippo and Foschi have shown resistance to this selective use of general county taxes, but pointed out the county’s share of the COVID-19 Relief Fund from the Federal United States Relief Program. did. Expected allocation of $ 50 million.

“I’m very uncomfortable with using the general property tax dollar,” Foski said. “I am very happy with the ARP funding.”

University enrollment losses after 2020 will clearly be covered by ARP compensation, and the university will release at least $ 1.4 million to add to its debt reserve, according to Difilippo.

However, the county is still in the process of putting together an application system for what is expected to be a local COVID stimulation program using ARP payments, which could bring a twist to the university timeline.

How satisfied are the underwriters with saying, “You can qualify for a grant that doesn’t exist yet?” “Gary Eichelberger asked.

Eichelberger will use other sources of funding for Central Pen’s request, including revenue from the county’s sale of the Claremont Nursing and Rehabilitation Center, a county-owned home that the county has signed a sale agreement and is expected to close in the coming weeks. I helped more with that. ..

Brennemann suggested that the county could send a letter of assistance to the underwriter while the program was in progress if Central Pen made an application as soon as the county completed the program.

“It’s as easy as Central Pen applied for $ 1.4 million, the application was reviewed, qualified, and met all the requirements for issuing grants. Funds will be available at x. “Brennemann said. “This is a clear indication that the funds are available and will be provided. Probably that will work.”

Central Penn University is undertaking a non-profit conversion by requesting new county funding.state

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