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Diving Into a “Whole New Ocean of Capital”

Earlier this year, when LISC raised $100 million in the first-ever initial public offering of a CDFI bond, it broached a brave, new world of 21st-century nonprofit financing. An article in Next City details why tapping new capital is so important for community development today, and how LISC is leading the charge to access the market in innovative ways.

The excerpt below is from:
Community Development Lenders Go Where Amazon Goes When It Needs Cash
by Oscar Perry Abello, Next City

There are $92 trillion in bond markets around the world. Corporations have ready access to those dollars. For example, when Amazon needed $16 billion to acquire Whole Foods, it borrowed it through the bond market.

Now, nonprofit lenders in the U.S. with a mission to make capital meet the needs of poor communities have a foothold into that world.

“When I was in the capital markets I always said, how come we aren’t investing enough here domestically,” says Lisa Jones, who works at the U.S. Treasury’s Community Development Financial Institution (CDFI) Fund, which supports those lenders — community development financial institutions, or CDFIs — nationwide. “We can make investments all over the world, and we can assess the risk. Why can’t we assess the risk here in some of our underserved and low-income communities?”

At the CDFI Fund, Jones built and runs a program that prepares community development lenders to access the bond markets. In April, a CDFI made a bond offering.

In some ways, it was not unlike other bond offerings. An investment banker from a big-name Wall Street firm made a call to a portfolio manager at a financial services firm. (Portfolio managers invest money on behalf of retirement account holders, pension funds, university endowments and insurance companies.) The investment had a high rating from Standard & Poors, one of the big three investment ratings agencies, meaning it was a relatively safe investment. There weren’t any tax incentives or other public subsidies for those who invested in the offering.

In other ways, the move was completely unprecedented. CDFIs specialize in cobbling together the alphabet soup of community development: LIHTCs (Low-Income Housing Tax Credits), NMTCs (New Markets Tax Credits), CDBGs (community development block grants) and many other tools and programs, along with individual donations and philanthropic grants. Many CDFI borrowers are other nonprofits that build affordable housing, community centers, federally qualified health centers, commercial or industrial space, or other facilities in low-income neighborhoods.

The question in April: Would enough portfolio managers be convinced that investing in a CDFI was a risk worth taking?

By the end of the month, not one but two CDFIs had broken into the bond markets. The Local Initiatives Support Corporation (LISC) raised $100 million in the first-ever initial public offering of a CDFI bond, followed closely by Reinvestment Fund, which raised $50 million in its first public bond offering. Both offerings were oversubscribed, meaning each CDFI received more in bids than it was selling. Continued [+]...