In a first-ever move of its kind, the Local Initiatives Support Corp. (LISC) is issuing $100 million in general obligation bonds to help drive investment capital into distressed urban and rural communities across the country.
Bond proceeds are expected to support housing as well as other economic development efforts.
“Impact investors are looking for proven ways to help revitalize communities and restore economic mobility for people fighting to compete in the current economy,” said Maurice Jones, LISC president and CEO. “LISC has been leading that work for decades, building a track record that improves the quality of life for people all across the country.”
The offering represents the first time a Community Development Financial Institution (CDFI)—a designation for specialized lenders focused on the needs of low-income people and places—has tapped the bond market for growth capital, according to LISC, a national nonprofit and one of the nation’s largest community development intermediaries.
"We hope that this becomes a commonplace occurrence for a CDFI to be issuing in the public market," said Elise Balboni, LISC senior vice president of lending.
CDFIs have typically been capitalized by banks driven by Community Reinvestment Act obligations as well as philanthropic organizations.
By issuing their own bonds, CDFIs could increase their geographic, programmatic, and (financial) term flexibility, according to Balboni.
The move is notable coming at a time when Community Development Block Grants and other federal community development programs are proposed for drastic cuts or elimination by the Trump administration.
The bonds have no geographic or programmatic restrictions, making them a flexible opportunity for a broad range of investors. Morgan Stanley is serving as the underwriter for LISC’s planned financing.
Standard & Poor’s assigned a “AA” rating to the bond issue, which includes term bonds of 10 and 20 years.
The rating mirrors S&P’s issuer credit rating, assigned to LISC last September. LISC made the unusual move of seeking a credit rating—which is more closely associated with corporate and government bond issuers than nonprofits—as a way to demonstrate the value of investing in places typically labeled as too poor or too risky for the private market.
LISC officials got an early taste of the bond market a few years ago as one of the participants in the Treasury Department’s CDFI Bond Guarantee Program. Under the program, the federal government guaranteed bonds that were issued by qualified entities to inject capital into distressed communities. In the inaugural round, LISC received $50 million through bonds issued by Bank of America CDFI Funding Corp. and helped finance charter schools in Albany, N.Y., and Newark, N.J.
“It has never been more important for us to invest in local economies so families can raise their standards of living,” Jones said. “This new capital will not only help us fuel businesses, jobs, and large-scale redevelopment efforts, but also help address the persistent social and economic challenges preventing people from maximizing economic opportunities.”
LISC has posted record results in the last two years, including investing more than $1.3 billion in 2016 grants, loans, and equity to support economic development, affordable housing, health care, community safety, education, family financial stability, and employment.
“From a pragmatic economic viewpoint, this work could not be more critical,” said Robert Rubin, former Treasury secretary and LISC’s longtime chairman. “The lack of economic mobility we see in both large cities and small towns is having a profound effect on the country. LISC addresses these challenges directly, while also acting as an incubator for innovation in community development, testing promising ideas and helping bring solutions to scale.”
LISC is headquartered in New York but is locally focused, operating through 31 urban programs and a rural development effort that touches more than 2,000 counties. Since 1980, LISC has invested $17.3 billion to build or rehab 366,000 affordable homes and apartments and develop 61 million square feet of retail, community, and educational space.
