The Question of Debt

The question of debt has been mentioned at a number of forums. The Joint Committee on Program Budget and Finance would like to respond to questions that are being asked in a variety of circles. We realize that we cannot work on the budget prior to the upcoming General Convention, however, the more information that we make available the more likely, we hope, to expedite our process. The current debt of the Domestic and Foreign Missionary Society is a question that we have heard and below is a narrative along with a chart supplied by the Finance Office of The Church Center that gives information on the current situation. We hope that this information will respond to some of the questions.

Faithfully yours,
Diane Pollard, Chair
Stephen Lane, Vice Chair
Joint Committee on Program Budget and Finance

The Episcopal Church has two loans with a current indebtedness of 43.4 million dollars.

The Church Center Building - 815 Second Avenue New York, NY 37 million at origination, 34 million as of 12/31/2011
The initial debt associated with the renovation of the Church Center Building at 815 Second building was 37 million. The loan had a variable interest rate and matured in December 2010. We primarily paid interest only. In June 2010, in anticipation of refinancing that loan to avoid a balloon repayment, Executive Council adopted a resolution mandating payments of both principal and interest. The loan was refinanced in January 2011 with a fixed interest rate and mandatory principal payments. During 2011, mandatory and optional repayments were made, reducing the principal to $34 million at year-end. The current loan matures in January, 2016 and must either be paid in full or refinanced. Based on a continuation of the current interest rates, term and conditions, the loan would be paid off in 23 years.

Future Potential Site for the Archives of the Episcopal Church - Austin, Texas
A parcel of land, currently operated as a parking lot, was purchased as the potential site for the Archives; the property was acquired for 9.5 million plus closing and related costs and was financed with a 10 million line-of-credit 5-year balloon payment loan using the endowment as pledged collateral. The loan requires payments of interest only and has a variable interest (currently about 1.5%). We currently pay loan interest and real estate taxes due (the property is subject to tax because it is not used for religious or other exempt purposes). The current income from the parking lot exceeds the interest on the loan and the taxes. Any excess has been used to reduce the principal outstanding. The disposition of the property and the loan will be influenced by future decisions about the relocation of the Archives.

Additional Debt Data

DFMS Credit Facilities
$ unless otherwise noted
	US Bank Term Loan	US Bank Revolving Credit	Bank of America Revolving Credit
Purpose	General purposes; primarily building renovation	General corporate purposes; short-term cash needs	Archives Austin site; short-term cash needs
Original/maximum facility amount	37,000,000	5,000,000	20,000,000
Outstanding at 12/31/2011	34,122,800	n/a	9,340,000
Interest rate basis	Fixed	LIBOR + 0.75% determined at time of draw	LIBOR + 1.0% determined at time of draw
Interest rate	3.69%	1.22% if drawn on 5/8/12	1.58% currently
Annual mandatory principal repayment	1,480,000	n/a	n/a
Annual debt service (principal and interest)	2,739,131	n/a	147,572
2013-2015 draft budget line 285	8,700,000	n/a	See note below
Termination date	January 2016	January 2012	April 2016
Commitment fee	n/a	0.25%	0.15%
Pledges	Securities	Unsecured	Securities
Notes	No penalty for prepayment	n/a	Excess revenue after debt interest and real estate taxes is used to reduce principal

Additional Notes

US Bank

·         Principal repayment is based on a 25-year schedule.  The loan is renegotiable in 2016; and US Bank expects to renew unless the credit worthiness of the DFMS evaporates. 

·         There are two main financial covenants attached to the debt obligations.  The tests are based on DFMS consolidated financials (which are only produced on an annual basis).  However, based on the more conservative analysis of the unaudited, unconsolidated “parent only”, the DFMS exceeded both tests.   The Society’s debt to net assets ratio (i.e., debt/ (debt + net assets) is 14.6% -- a ratio that would rank among the best in a corporate environment.

Bank of America

·         The loan is interest only.

·         The property acquisition and closing costs totaled $10 million in June 2009.

·         Financed through the DFMS Line of Credit. The DFMS is the owner and borrower, however, as Archives is not independently incorporated – nor could it qualify as a borrower.

·         Gross revenue from operating a parking lot (approximately $510K annually and continues to increase) provides payments of interest and real estate taxes.  Excess revenue after interest and real estate taxes is used to reduce principal.

·         Independent appraisal completed in October 2011 valued the property at $10.950 million. 

• These revenues and charges are separate from the operating budget because it is not a “primary activity" of the society.

Resolution from Executive Council

ec_023