A Lake Forest-based lender primarily focused on community development has received $100 million through bond debt backed by the U.S. Department of the Treasury and targeted for use on projects in low-income and underserved areas.
Clearinghouse Community Development Financial Institution, which serves California and Nevada, has its headquarters in Orange County and other offices in Los Angeles, Oakland and Las Vegas.
Program
The funds were part of the federal CDFI Bond Guarantee Program, which was enacted in 2010 through the Small Business Jobs Act to help “fill a financing gap in underserved areas by providing long-term, fixed-rate capital,” according to the Treasury.
The bond loan program is structured so that an entity designated as a “qualified issuer” sells bonds to the Treasury’s Federal Financing Bank—the sole purchaser.
Issuers lend the proceeds to eligible community development financial institutions, which range from affordable housing trusts to credit unions.
The Treasury provides a 100% guarantee on the bonds to “protect the lender/purchaser, which is the Federal Financing Bank, from default and prepayment risk,” the Treasury said.
The CDFIs that received the bond proceeds would then make loans to secondary borrowers, which could range from small businesses and affordable-housing developers to healthcare facilities and nonprofits.
Local projects funded by Clearinghouse CDFI include a $250,000 loan to Healthy Smiles for Kids of Orange County, a Garden Grove-based nonprofit organization focused on pediatric health and dental care. Clearinghouse CDFI also provided $30 million to the Orange County School of the Arts in Santa Ana in late 2010 for the school’s expansion.
“As a CDFI, we’re interested in projects that have community benefit or address unmet credit needs,” said Clearinghouse CDFI founder and Chief Executive Douglas Bystry. “We focus on loans that traditional institutions can’t or won’t do. [We look at] loans for nonprofit borrowers or low-income borrowers, things of that nature that conventional financial institutions find very hard to do … just having access to this debt source of new capital is something that we’re really excited about.”
Clearinghouse CDFI as of the end of 2013 had $161 million in assets, up about 18% from a year earlier, and about $134 million in liabilities, a similar year-over-year increase. It had net income of nearly $3 million last year, up 76% from 2012.
It has provided about $1.1 billion in loans since being founded in 1996 and serves about 810,000 people annually.
Clearinghouse CDFI was one of four institutions that participated in the first funding round of the federal bond guarantee program, which allocated $325 million overall for fiscal year 2013.
The other three recipients were New York-based Community Development Trust LP, Local Initiatives Support Corp. in Los Angeles, and Enterprise Community Loan Fund Inc. in Columbia, Md.
“We had to apply and go through a due diligence process to prove to the U.S. Department of Treasury and the Office of Management and Budget to show that we had the capacity to take on this debt to our balance sheet,” Bystry said. “We had to show that we have a good track record of lending, that we’re good stewards and have been prudent handlers of resources up to this point.”
$7 million
Clearinghouse CDFI so far has drawn about $7 million of the funds, which went toward various projects, including a retail center “in a blighted neighborhood” and a nonprofit K-12 school.
“We have to draw it down in increments and make loans with that money,” Bystry said. “It’s certainly not an award or a grant—we’re paying it back.”
Bystry said Clearinghouse CDFI and its borrowers will benefit by having funds available for the long term at a known interest rate.
“There’s a rate associated with each draw tied to the term that we select,” he said. “[What’s] really noteworthy is that we can draw up to 29-year money. While the rate changes each year, once we draw it, it’s fixed [for] that term. It allows us to turn around and offer a long-term fixed rate to our borrower.”
Clearinghouse CDFI worked on the recent funding with Opportunity Finance Network, a Philadelphia-based group that served as the qualified issuer.
“[Opportunity Finance] functions as the compliance officer to ensure that we are adhering to the requirement,” Bystry said.
Clearinghouse CDFI is supported by various investor banks, including several with headquarters in Orange County. Plaza Bank, for instance, recently became a financial partner with a $250,000 equity investment in the CDFI.
Plaza, headed by Chief Executive Gene Galloway, is based in Irvine and has operations in Nevada. It had about $533 million in assets as of the end of June, a 15% growth year-over-year.
Banc of California Inc., also based in Irvine, bought $705,000 worth of Clearinghouse CDFI shares in May, acquiring an 8% stake. Banc of California is the largest bank with headquarters in Orange County, with about $4.4 billion in total assets as of June 30.
