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Michael J. Schierl
10 Year Hence Objective
Build a New Catholic Financial EcoSystem
 Catholic Dioceses/Foundations – Issue Catholic Conduit Bonds
 Mortgage Bonds – Fund Parish Campus Expansion
 FlexEndowment Bonds – Endow as We Build
 Catholic Institutions/Endowments – Purchase “Catholic Impact” Bonds
 Parishioners – Become Balance Sheet Philanthropists
Prove Scale: $1.0 Billion of new Funding in 10 Years
Model: 25 Model “Marytown” Campuses @$40.0 Million Each
 $10.0 Million – Church/School Building Improvement
 $30.0 Million – Senior Care Facility
2
Mission Possible Mentality
Our Lady – Nothing impossible with God (Lk: 1:37)
 The New Evangelization – John Paul II “Totus Tuus”
 St. Maximillian Kolbe – Militia Immaculata / Originator of “MaryTown” Concept
 Lessons: “Parable of the Talents” / “Five Loaf and Two Fish” / “Old Lady & the Coin”
What is the Five Loaf and Two Fish of Today’s Catholic Church?
 186 Dioceses – “Catholic Municipalities” with Public Bond Issuing Capability
 Land – Largest Landowner in World
 Interest Rates – Historically Low Levels
 70M US Catholics –$9B Annual Donations to Parishes (7% give the Majority)
 Seniors
-- Largest Generational Wealth Transfer in History over Next 20-30 Years
-- Fixed Income / Assisted Living Needs (Virutally No Estate Giving)
3
Mission Possible Team
Bond Placement Agent
Bond Counsel
Bond Trustee
Actuary
National Conduit
Bond Issuer
Campaign Counsel
Insurance Provider
Diocesan Partners / Co-Developers
Diocese of Phoenix
Diocese of Lexington
Archdiocese of Dubuque
4
Mission Possible Funding Paradigm
Current Church Funding Paradigm
“Send them Away”
Scarcity Mentality
Funding
Need
Solution
Operations
Shrink
Mission to
reduce
Shortfalls
How
Shrink Staff
Sell Assets
“Band-Aid”
Priority /
Duration
Mission Possible Funding Paradigm
“Five Loaf and Two Fish”
Abundance Mentality
What
Solution
How
Priority /
Duration
Endowment
Proactive
Campaign
30 Years
FlexEndowment
Bonds*
Broad-Based
Estate Giving &
Insurance
First,
Perpetual
Capital
- Church
- School
Proactive
Campaign
30 Years
Mortgage
Bonds*
Broad-Based
Annual &
Struct’d Giving
Second,
Perpetual
Operations
Expand
Campus to
Grow and
Fund Mission
Outside
Financing*
(Senior Living)
Right to Acquire
Third,
Next 10 Years
First
Perpetual
Capital
- Church
- School
Reactive
Campaign
5 Years
Narrow
Major Gift
Arm-Twist
Campaigns
Second,
Sporadic
Endowment
Donor
Initiated
Cash
Campaign
“Add On”
Third,
If Ever
The Catholic Municipality Opportunity
A Catholic Diocese is like a Civil Law “Municipality”
 Geographic Boundary / 186 US Dioceses
 Taxing Power
 501(c)(3) Issuer Exemption / Issue “Public Bonds” at Low Cost
 Can Serve as Conduit Issuer for All Catholic Entities in Diocese
Catholic Taxable Bonds
 Secured: Secured Bonds Defeat Tort Judgments in Bankruptcy
 Flexible: No Use of Proceeds Limitation (Capital, Endowment, Operations)
 Faithful: No requirements Contrary to the Catholic Faith
 Liquid: Private Bank Bonds; Public Bonds (Unrated or Rated)
 Abundant: Only limited by Project Debt Coverage Ratio / Loan-To-Value
 Donor-Friendly: Perfect “Structured Giving Inventory”
6
Mortgage Bond – Innovation
The Conduit Mortgage Bond
Improvements:
D&L Mortgage Bond Structure
Parish
Depositors
Deposit Claim
Conduit Issuer
Diocesan D&L Mortgage Bond
Loan
Note
(Diocesan 501c3 Entity)
Buys
Jr. Bonds
Parish
Borrower
Real Estate
Note
Pmts
Mortgage
Bondholders
Sr. Mtg.Bonds 75%
Bond Pmts
Jr. Mtg.Bonds 25%
Bond Proceeds
75% of Capital from Outside Investors
400% Incr. in Lending Capacity
25% Jr. Bond Purchase – In Lieu of Guaranty
Secured (Mortgage)
Loan Liquidity / Standardized Loan Docs
DCR & LTV Qualified Loans
Trustee = Outsourced Loan Admin
Jr. Bonds = Structured Giving Inventory
Bond Trustee
(Bond Expenses)
Remaining Challenges:
Parish Deposits – Still Bankruptcy Exposed
Hard to Justify – Small or Shrinking Dioceses
Sr. Bonds – Lost as Structured Giving
Inventory
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Mortgage Bond - Results
Diocese of Phoenix Mtg. Bonds
CHURCH / SCHOOL / FUND
BOND TYPE
PURPOSE
AMOUNT
BOND DATE
St. Margaret Mary Parish
Bullhead City
Taxable
Public Unrated
New Church Building
$3,725,000
Dec. 15, 2009
St. Mary Magdalene
Gilbert
Taxable
Public Unrated
New Church Building
$4,100,000
May 15, 2010
St. Bernard
Scottsdale
Taxable
Public Unrated
Church Building Expansion
$1,500,000
Sept. 1, 2010
All Saints
Mesa
Taxable
Public Unrated
New Church Building
$2,600,000
Sept. 15, 2010
St. Columba Kim
Mesa
Taxable
Public Unrated
New Church Acquisition
$1,360,000
Oct. 1, 2010
St. Thomas Aquinas
Avondale
Taxable
Public Unrated
New Grade School Building
$6,200,000
Oct. 15, 2010
St. Clare
Phoenix
Taxable
Public Unrated
New Church Building
$4,400,000
Feb. 15, 2011
Roll-Up Bond #1
3 Parish Notes
Taxable
Public Unrated
Refinance Three (3)
Deposit & Loan Notes
$2,240,000
Nov. 29, 2011
Roll-Up Bond #2
4 Parish Notes &
Property & Casualty Fund Note
Taxable
Public Unrated
Refinance Five (5)
Deposit & Loan Notes
$8,750,000
June 1, 2012
(Scheduled)
TOTAL - 9 BOND OFFERINGS
Taxable
Church, School & Diocesan Entity
$34,875,000
2.5 Years
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FlexEndowment Bond
The FlexEndowment Campaign
A FlexEndowment program can be built with parishioner/school supporters through the use
of level-pay premium, whole-life insurance policies. If bonds are issued to pay premiums on
the life policies, those bonds can become ideal “donor inventory” for charitable trusts that
will benefit the parish/school through repayment of principal and/or interest on the bonds.
Current Practice:
Endowment “Campaigns”
Typically a Disconnected Component
of a Cash Campaign
No Use of Structured Giving to
finance Life Insurance Policies
Narrow: Little Guy’s Left Out
Individual Donor typically does not
experience the fruit of his/her Gift.
Improvement:
The FlexEndowment Campaign
Conducted Prior to or Simultaneous
With a Capital Campaign
Heavy Use of Structured Giving to fund
Life Insurance.
Broad: Everyone Can Participate
Donor community experiences the
Campaign commitments while alive.
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FlexEndowment Bonds
Success Story: Cornerstone FlexEndowment
In 2010, Cornerstone Charitable Foundation (CCF) engaged Julius Capital to implement
the FlexEndowment Program to support St. John the Baptist School (SJB) in Beloit, KS
 142 Student Pre-K through High School
 Population 3,800 / School “System” Supported by Single Parish
 CCF had no Paid Personnel / No Donor Database /
 Virtually no annual fundraising
As of 12/31/14 (Year 5), the CCF FlexEndowment consists of the following:
 $33.7 Million Death Benefit - 123 Policies (Avg. Insured Age 67)
 $8.85M - FlexEndowment Bonds Out (Most Recent Issue at 4.0% Fixed)
 $4.5 Million – Expected Grant Distributions over 31 years
 $17.2 Million - Expected Yr.31 Endowment (Bonds fully Repaid Yr.26)
SJB on the verge of closing five years ago, now:
 162 students
 2014 - Raised over $900,000 / Over $350,000/year Projected thru Yr.31
 2014/15 - 2 Time Defending Kansas State High School Scholars’ Bowl Champion
 2014 HS Boys Basketball State Champion / 2014 HS Football #3 in State
 Looking to Expand Campus – Possible Site First “Marytown” Senior Living Facility
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FlexEndowment Bonds
How They Work –Interest Payments
FlexEndowment Bonds Issued – Shelf Offerings (as needed).
 “Long” Balloon-Maturity, Interest-Only FlexEndowment Bonds (FE Bonds) are issued
to finance life insurance premiums on “starting policy base.”
 The FlexEndowment Bonds are secured by the Policies and a Pledged Account which
holds excess Bond Proceeds, pays permitted Campaign Expenses and receives all
Policy Death Benefits, Donations and Estate Gifts.
Interest Payments - Annual Giving/CLTs.
 Borrower pays FlexEndowment Bond interest, through (i) Annual Giving and (ii) the
sale of newly issued FlexEndowment Bonds (from the shelf) into Charitable Lead
Trusts (CLTs).
 Example: $100,000 25 Yr Bond @7.5% = $7,500/Yr of Interest
 In CLT, Donor donates the interest payments for a Term of Years (eg, 10 years), but
the Donor receives the Bond back at CLT termination. Donation = $75,000
 Shelf Bonds sold to CLTs with irrevocable “Bond interest donate-back” commitment
can create “low-interest / interest-free” financing for a set period of years.
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FlexEndowment Bonds
How They Work – Principal Payments
Principal Payments – Estate Giving/CRTs.
 Bond principal repaid through (i) Estate Gifts and (ii) the sale of FlexEndowment
Bonds (from the shelf) to donors who establish a Charitable Remainder Trust (CRT).
 In CRT, Donor receives bond interest payments for Life or a Term of Years (eg, 10
years), but donates the Bond back to Charity at that time. Charity can retire the
Bond or retain as “donor inventory” to sell again to another Donor CRT or CLT
 Shelf Bonds sold to CRTs with irrevocable “Bond principal donate-back” commitment
create “true interest-only” financing with no principal repayment obligation.
Life Policy Death Benefits.
 Policy Death Benefits repay any remaining Bond principal not repaid through Estate
Gifts/CRTs.
 For example, the CCF/SJB FlexEndowment currently holds $33.7 Million of gross
Policy D.Benefit. The Pro Forma projects that $17.1 remains in the FlexEndowment
after all FlexEndowment Bonds repaid.
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National Conduit Bonds
Advantages Versus “Own Issuer Setup”
National Conduit Issuer Bonds – Advantages
National Conduit Issuer Bonds
Real Estate
Diocese
(or
3rd
Party)
Conduit
Issuer
Loan
Borrower
Securities
Note
(Parish)
Insurance
Guaranty
(if needed)
Note
Pmts
Bondholders
Private Bank Bonds
Bond Pmts
Public CUSIP Bonds
Bond Proceeds
Mortgage &
Pledge
Bond Trustee
(Bond Expenses)
Attractive Vs. Setting Up “Own Issuer”
 Fast (120 Days vs. 1–2 Years)
 Issuance/Facility Fees vs. Six Figure Setup Cost
 Easy to “Test” 1 Transaction
Specialized / Sophisticated
 Shelf Offering Capability
 Turnkey Canon & Civil Law Compliant
 Private Bank Bonds & Public CUSIP Bond
 Mortgage & FlexEndowment Bonds
Attractive to Institutional Bond Purchasers
 “Known” Issuer = Better Paper / Liquidity
 Geographic & Asset Class Diversification
 Structure Reduces Local Diocese Bankruptcy Risk
The Future – Specialized National Issuers
 Cornerstone Charitable Foundation (KS)
 Religious Order School Networks / ACE?
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National Conduit Bonds – Putting It All Together
Mortgage Bonds and FlexEndowment Bonds
Mortgage Bonds. Sts. Peter and Paul School (SPPS), a Catholic Elementary School in the
Diocese of Lexington, recently refinanced $11.0 million in bank mortgage debt originally
incurred to renovate its school facility.
 In the refinancing, Cornerstone Charitable Foundation served as Conduit Issuer to issue Private Bonds (X-




Bonds), which were purchased by a single Bank.
In a Campaign being implemented with Julius Capital, SPPS will sell A-Bonds (from the shelf) under the same
Master Indenture, as donor inventory to fund charitable trusts to benefit SPPS.
SPPS annual fundraising will pay the interest on the bonds
The A-Bonds will ultimately be repaid with the proceeds of estate gifts and the proceeds from these charitable
trusts
The Mortgage Bonds (X/A) are secured by a Mortgage on the School and Guaranteed by the Diocese of
Lexington.
FlexEndowment Bonds. SPPS is now in the second year of its FlexEndowment program,
modelled on the CCF/SJB FlexEndowment.
 By June 30, 2015, SPPS expects to have 50 in-force policies with a total death benefit of $12.5 million and
annual premium expense of $250,000.
 SPPS is now in the final planning stages to issue FlexEndowment Bonds secured by the Policies. The
FlexEndowment Bonds will be issued under the same Master Indenture as the SPPS Mortgage Bonds and have
a 2nd priority interest in the Mortgage.
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MaryTown
Senior Care Facility “Add On”
Catholic Senior Living Add-On. Now working with a Partner to offer
a Turnkey Senior Care Facility Campus Add-On Opportunity to the
most worthy sites and communities.
 Womb to Tomb Catholic Community.
 Assisted Living, Memory Care and Health Care Coordination
 Volunteer, Staffing and Service Opportunities for School/Parish
Project Cost & Financing.
 Avg. Project Cost: $30.0 - $35.0 Million
 100% Outside Financing.
 Income Contribution to Parish/School
 Active Estate Giving Programs
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Mission Possible Review
Pre-Conditions in Place: 25 MaryTowns = $1.0 Billion
 Conduit Mortgage Bonds.
 FlexEndowment Bonds.
 National Catholic Conduit Bond Issuer(s).
 Senior Care Campus Add-On.
Thanks to Those Who Believed from the Start
The New Catholic Financial Ecosystem:
Welcome to Those Who Will Join Us to Make it a Reality.
We Need You!
16
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