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Finding New Capital for Community Development in the Bond Market

Last month, LISC became the first-ever CDFI to make an S&P-rated bond offering—$100 million worth—to help bring capital to low-income communities. It completely sold out and was, in fact, oversubscribed. Now, a second CDFI, The Reinvestment Fund, has offered $50 million worth of bonds of their own. In an article for ImpactAlpha, Oscar Perry Abello examines how the brave new world of private-capital bonds could change financing for projects in underinvested places.

The excerpt below is from:
A private bond market emerges for low-income community development
by Oscar Perry Abello, ImpactAlpha

If you need an example of how catalytic public and private impact capital can open private capital markets for low-income communities, consider the scene at The Reinvestment Fund in Philadelphia as bids came in last week for the organization’s $50 million in S&P-rated bonds, only the second such bond offering ever.

It was nervous-time. CEO Don Hinkle-Brown didn’t know what to expect in The Reinvestment Fund’s first dip into global capital markets. Then the bids started rolling in. The staff cheered and hugged as the issue was oversubscribed within minutes.

That anonymous private investors would buy unsubsidized bonds on the open market signals a new source of capital for childcare centers and charter schools, grocery stores and health clinics, energy efficiency upgrades and small businesses in low-income communities across the U.S.

“I have speculated and fantasized about real access to the capital markets for decades,” Hinkle-Brown told ImpactAlpha. “If there’s enough activity and we can build a marketplace, we can see whether people will pay for impact.”

Capital constraints

Reinvestment Fund is on the move. This year, the Philadelphia-based community development financial institution expects to finance 1.3 million in commercial square footage, capacity for an additional 175,000 patient visits, 600,000 new megawatt-hours of clean energy production and more.

The individual projects are targeted to benefit low-income communities located in at least 10 states plus the District of Columbia. And for the first time, bond market investors are coming along for the ride.

The $50 million in medium-term bonds sold last Thursday carried an AA- rating from S&P. Bank of America Merrill Lynch was the underwriter.

The Local Initiatives Support Corporation (LISC), another community development finance institution, or CDFI, with an AA rating from S&P, closed the first ever private-capital markets sale of CDFI bonds with a $100 million offering of longer-term bonds last week (see, “LISC offers first CDFI bond to bring private capital to low-income communities”). LISC received $130 million in orders on its offering. Continued[+]...

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