1. The Bond Buyer Online
Log Out Home | Subscribe | Advertise | Help | Contact Us | About Us | Archive | Feedback Wednesday, July 06, 2005
Search T H E D A I L Y N E W S P A P E R O F P U B L I C F I N A N C E
Headlines
Digest
News In Brief
Market News
Regional News
Washington
Investors & Investing
Underwriters & Dealers
Requests for Proposals
Competitive Notices
Calendar
Sales Results
Negotiated Notices
Calendar
Sales Results
Bond Redemptions
Daily Weekly
Monthly Quarterly
Semiannual & Annual
Archive
Real-time Pricing
Job Postings
Situations Wanted
Hiring Solutions
Media Kit
BB Conferences
Upcoming Events
Municipal Links
Products
Search the editorial
archive for more
information
Austin Diocese's Landmark Deal Opens
Gates for Religious Issuers
Posted on Friday, June 17, 2005
Source:
By Elizabeth Albanese and Shelly Sigo
DALLAS -- A recently completed $79.8 million sale of tax-exempt
revenue bonds on behalf of the Roman Catholic Diocese of Austin
is expected to pave the way for similar deals, not only for Catholic
dioceses, but for other religious denominations.
The landmark deal, which financed projects ranging from parish
halls to classrooms, marks the first time that rating agencies and
banks have regarded donations as a reliable recurring source of
revenue. The deal was first reported this week in the National
Catholic Reporter.
"Looking at the flow of donations for the Austin diocese over the
last 20 years, which we used as a benchmark, we found that
there was a steady increase in donations from year to year," said
Pat O'Meara, a managing director and founder of Reston, Va.-
based O'Meara, Ferguson & Kearns, which served as the financial
adviser for the deal. "The revenue from that source never
dropped once."
The 40-year variable-rate bonds were issued by the Capital Area
Cultural Education Facilities Finance Corp., an arm of the Texas
village of Creedmore, which served as a conduit issuer for the
transaction. In addition to the bond issue, the diocese also
participated in a swap from variable to fixed rate.
"We've actually done financings for schools with religious
affiliations in Texas for a number of years," said Bob Griffo, a
partner with Andrews Kurth LLP, which served as bond counsel
for the transaction.
Jerry Kyle, also a partner with Andrews Kurth, said that to qualify
for financing under the Texas state law that provides for the
conduit structure that in turn permits the financing to qualify for
tax exemption, facilities had to fall under two general categories.
"The Texas statute allows for the use of tax-exempt financing by
cultural educational facilities finance corporations if the projects
qualify as educational facilities or cultural facilities," he said.
The fact that Creedmore is located in a county with a population
greater than 400,000 allowed the corporation under state law to
issue the debt for projects in more than one county.
http://www.bondbuyer.com/search.html?kw=o'meara&query...)&articleid=1&connid=417129&limit=(jn+the+bond+buyer) (1 of 4)7/6/2005 8:59:34 AM
Jul 06, 2005

2. The Bond Buyer Online
In the case of the Austin diocese, new classrooms and facilities
for its accredited schools qualify as tax-exempt projects, and
parish halls, recreation centers, and meeting spaces qualify as
cultural facilities.
"Some of the facilities that were included in the Austin transaction
are similar to facilities that have been financed for the YMCA,"
Griffo said.
And although Catholic parishes and even two dioceses - in
Indianapolis and Arlington, Va. - have issued debt before, the
Austin deal stands apart for its size and diversity of projects.
Future deals in other states would require a thorough review of
state and federal laws to see if they qualify for tax-exemption.
For instance, in Colorado, projects must pass a test of "pervasive
secularism" in order to qualify for tax-exempt financings. Other
states allow the issuance of debt for projects related to nonprofit
corporations, or 501(c)(3)s, but not all projects associated with
religious-affiliated organizations would qualify.
"Sanctuaries, for instance, would not qualify," Griffo said.
Catholic parishes have traditionally relied upon inter-diocesan
loans to fund capital needs. However, because the Catholic
Church builds about $10 billion of facilities each year in the U.S. -
repaying debt in about three years - the church has historically
been land-rich and cash-poor.
"Parishes have capital fundraising campaigns, and they raise an
amount set by the diocese - be it 40% of the project's cost or
50%, or whatever that number is," O'Meara said. "They then
take out a bridging loan, build the building, and pay down the
loan - and then they're broke again."
Traditionally, Catholic parishes either take out commercial bank
loans or borrow directly from the diocese. O'Meara said that by
stretching out the lifetime of the debt, the diocese can
significantly reduce annual debt service obligations.
"That gives both the parish and the diocese the ability to build up
their balance sheets," O'Meara said.
For the Austin diocese, which serves a 19,000 square-mile area,
500,000 Catholics, and 125 parishes, the ability to better
leverage its income will allow greater flexibility in serving its fast-
growth parishes.
"This is a much more direct way of financing our projects," said
Helen Osman, communications director for the diocese. "It also
means that more of the contributions our parishioners are making
go to actual projects - seminaries, educational facilities, parish
halls - as opposed to interest payments."
Goldman, Sachs & Co. was the lead manager for the transaction,
which closed in April, and Calyon Securities served as a co-
manager.
To ensure that the deal complied with state and federal
http://www.bondbuyer.com/search.html?kw=o'meara&query...)&articleid=1&connid=417129&limit=(jn+the+bond+buyer) (2 of 4)7/6/2005 8:59:34 AM

3. The Bond Buyer Online
regulations, a host of lawyers worked on the deal. In addition to
Andrews & Kurth, which wrote the bond opinion, Naman, Howell,
Smith & Lee served as counsel to the issuer, McGinnis Lochridge
& Kyle served as general counsel to the diocese, Squire Sanders
& Dempsey served as special counsel to the diocese, and Akin &
Almanza served as counsel to the trustee. Vinson & Elkins served
as underwriters' counsel.
To ensure that the deal complied with canon law, Monsignor
Ronny E. Jenkins, an assistant professor at the School of Canon
Law at Catholic University of America, also weighed in on the
deal.
The deal was backed by a letter of credit from Wachovia Bank. To
give the diocese a fixed rate of interest, the deal was swapped
from variable- to fixed-rate in a transaction with Wachovia and
Goldman Sachs.
Public Financial Management was the swap adviser to the diocese.
Moody's Investors Service conducted a joint-probability
assessment of the credit, which provided the diocese with an
underlying rating of Baa2 as well as a rating of Aaa/VMIG 1 based
on the letter of credit.
"Our rating of Baa2, which carries a stable outlook, is speaking to
the Diocese as a stand-alone entity and is meant to speak to the
financial position of the institution," said Moody's analyst
Elizabeth Veasey. "Since we determined there's a low probability
that the diocese would default and the letter of credit provider
would default, they were able to come in with a longer-term
higher rating."
Standard & Poor's rates the bonds AA-minus/A1-plus, which
reflects Wachovia's credit, said analyst Karen Flores. Fitch Ratings
does not rate the bonds.
(c) 2005 The Bond Buyer and SourceMedia, Inc. All rights
reserved. http://www.bondbuyer.com http://www.sourcemedia.
com
Copyright © 1997-2005 The Bond Buyer. All Rights Reserved.
YOU ARE ENTITLED TO DISPLAY AND SEARCH THE CONTENT OF THIS
SERVICE AT THE TERMINAL ACCESSING OUR SITE, AND TO DOWNLOAD
ARTICLES, SOLELY FOR YOUR OWN PERSONAL USAGE. NO PART OF THIS
SERVICE OR CONTENT CONTAINED HEREIN MAY BE OTHERWISE
RETRANSMITTED, REDISTRIBUTED, COPIED, STORED, DOWNLOADED,
ABSTRACTED, DISSEMINATED, CIRCULATED OR INCLUDED AS PART OF
ANY OTHER PRODUCT OR SERVICE.
http://www.bondbuyer.com/search.html?kw=o'meara&query...)&articleid=1&connid=417129&limit=(jn+the+bond+buyer) (3 of 4)7/6/2005 8:59:34 AM

4. The Bond Buyer Online
Subscribe | Subscriber Agreement | Privacy Policy | Linking Policy | My Account
(c)2005 The Bond Buyer and SourceMedia Inc., All rights reserved. Use, duplication, or sale of this service, or data contained herein,
except as described in the subscription agreement, is strictly prohibited. Trademarks page.
Client Services 1-800-221-1809, 8:30am - 5:30pm, est
http://www.bondbuyer.com/search.html?kw=o'meara&query...)&articleid=1&connid=417129&limit=(jn+the+bond+buyer) (4 of 4)7/6/2005 8:59:34 AM