Financing for Nonprofit Capital Projects: The Guthrie Theater

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Financing for Nonprofit Capital ProjectsThe
Guthrie Theater

• Jay Kiedrowski,
• Senior Fellow, HHH Institute, U of MN (Former
  Treasurer, Guthrie Theater)
• September 8, 2008

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Guthrie Theater Background

• First classical regional theater in U.S.
• Established in 1963 by Tyrone Guthrie
• Artistic Director, Joe Dowling, began in 1996
• His new vision for Guthrie Theater
• National Theater Center
• Need for new three-stage theater
• Original Cost 75 million

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New Guthrie Theater

• Guthrie Theater hired world class architect, Jean
  Nouvel, in 2001
• Project grew to 125 million by 2003
• Financing Plan
• - 40 million of State Bonding
• - 75 million of private contributions
  - 10 million from unidentified sources

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New Guthrie Theater - Proposal
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Reality

• MN Legislature provided only 25 million of
  bonding (vs. 40 million) in spring 2003.
• Fundraising goal was increased from 75 to 85
  million in May 2003
• An additional 15 million was needed to complete
  the financing
• Financing package needed to be in place to break
  ground October 1, 2003 or cost of project would
  increase substantially

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Creative Financing

• Finance and Investment Committees of Guthrie met
  with Public Finance Bankers
• Use of Creative Financing Explored
• Tax-exempt bonds could be sold to finance
  construction (Expected cost 2.5)
• Private contributions could go into endowment
  until project was completed (Expected return of
  6.5)
• Net of 4.0 per year for 5 years or 15 million

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Creative Financing
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Requirements for Financing

• Guthrie Board approval for overall financing
• City of Minneapolis approval for debt use
• Hennepin County Commissioners approval for land
• MN Commissioner of Finance approval for bonds
• Letter of Credit from local banks for bonds
• Detailed schedule of private contributions
• Definitions of collateral and artistic control

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EndowmentInvestment Policy Changes

• OLD
• Large Equity 30
• Small Equity 15
• Inter. Equity 20
• Fixed Income 25
• Hedge Funds 10

• NEW
• Large Equity 20
• Small Equity 10
• Inter. Equity 20
• Fixed Income 5
• TIPS 15
• Conservative Fund of Hedge Funds 30

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2003 Start

• 85 million in AAA tax-exempt 501(c)(3) variable
  rate 20-year demand revenue bonds were sold by
  the City of Minneapolis (with 65 million to be
  retired in 60 months)
• Guthrie pledged general assets for letter of
  credit on bonds, and accepted possibility of debt
• Issues of collateral and artistic control
  resolved
• Private contributions were put in Guthrie
  Endowment as received
• Project broke ground on time

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New Guthrie Theater Under Construction
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Update 2008

• Project completed on time and within budget
• Opened on June 24, 2006
• 85 million in bonds still outstanding at average
  cost of 5.0
• Net endowment return was as much as 11 million
  in excess of normal returns and borrowing costs
  for first 59 months, but now is 5.5 million.
• Lock-in of interest rates on bonds and collars on
  equity holdings occurred 2007
• 20 million in bonds retired early.

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New Guthrie Theater Completed
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The Future

• 45 million of debt outstanding to be paid-off
  March of 2009
• Up to 20 million will remain outstanding for
  another 14 years
• Investment policy will be changed to normal asset
  allocation before March 2009
• New issues of replacement costs/depreciation and
  additional programming are new focus

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Lessons Learned

• Energetic collaborative effort required of all
  stakeholders
• All stakeholders need to understand the risks vs.
  rewards
• Endowment investment policies should be changed
  to protect down-side
• Creative use of Bonding/Endowment can be a useful
  tool, but requires ongoing monitoring and
  reasonable markets

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Questions/Comments?