Church Bonds

[brewer12345]

Quote:

Originally Posted by braumeister Oh ye, of little faith!

I am comfortable in my identity as a suspicious bastard.

[braumeister]

If only more people would adopt that attitude.

[haha]

There are only a few denominations in the US that are growing, and many congregations and parishes are closing down, uniting with others, renting smaller space or otherwise contracting. It does not seem bullish. Plus, if you ever could see the quality of decision making in many of the old line churches it would make your bondholder hair stand on end.

Ha

[braumeister]

Quote:

Originally Posted by haha There are only a few denominations in the US that are growing...

Even more telling, those with no connection to any organized religion are also growing substantially.

Quote:

The American Religious Identification Survey gave non-religious groups the largest gain in terms of absolute numbers - 14,300,000 (8.4% of the population) to 29,400,000 (14.1% of the population) for the period 1990 to 2001 in the USA. Reuters describes how a study profiling the "No religion" demographic found that the so-called "Nones", at least in the U.S., are the fastest growing religious affiliation category. The "Nones" comprise 33% agnostics, 33% theists, and 10% atheists. A 2012 study by the Pew Forum on Religion & Public Life reports, "The number of Americans who do not identify with any religion continues to grow at a rapid pace. One-fifth of the U.S. public – and a third of adults under 30 – are religiously unaffiliated today, the highest percentages ever in Pew Research Center polling."

Claims to be the fastest-growing religion - Wikipedia, the free encyclopedia

[freebird5825]

Quote:

Originally Posted by brewer12345 Thanks. If you can share a prospectus at some point, please do.

Prospectus ? Huh ? Let us not forget about the SEC.

Religion and money donated oops invested have a long and colorful history.

RLH !

[freebird5825]

Quote:

Originally Posted by brewer12345 I am comfortable in my identity as a suspicious bastard.

By all means, please save room for me on that bench.

[Nords]

Quote:

Originally Posted by braumeister Oh ye, of little faith!

This is literally faith-based repayment, secured by property. Hypothetically their regulatory authority is a lot scarier than the SEC, with more power, and eternal implications.

It's a small market, not very liquid, and with a few defaults. It's possible that the people responsible for contributing the revenue to make the interest payments will... how can I put this politely... not be around to see the bond mature.

Is there a way to rate a bond like that?

[Lazarus]

I feel I am already contributing more to organized religion than I want to. Subsidized by the tax free status by everyone.

If the Church cannot raise money through normal channels I would not be willing to risk my money on it.

[JDARNELL]

[QUOTE=Nords;It's a small market, not very liquid, and with a few defaults. It's possible that the people responsible for contributing the revenue to make the interest payments will... how can I put this politely... not be around to see the bond mature.

[/QUOTE]

I think you are right. I can see older congregations that are expanding with a strong base having a portion of their bonds forgiven one the elders pass.

JDARNELL

[haha]

Quote:

Originally Posted by JDARNELL I think you are right. I can see older congregations that are expanding with a strong base having a portion of their bonds forgiven one the elders pass. JDARNELL

What does it mean to have a bond "forgiven"?

Ha

[brewer12345]

Quote:

Originally Posted by haha What does it mean to have a bond "forgiven"? Ha

As I understand it, members of the church who own the bonds not infrequently donate them to the church so they can be torn up.

[haha]

I see, thanks. Kind of a costless, informal sinking fund.

Ha

[Nords]

For those who've asked to see additional examples, I've posted a total of three different prospectuses for church bond issues at my Scribd account. I'll post more if there's more interest.

Here's the link to "The Military Guide" account:
http://www.scribd.com/TheMilitaryGuide

http://www.scribd.com/doc/111283103/...urch-Las-Vegas (25 MB)
http://www.scribd.com/doc/111783765/...ege-Station-TX (18 MB)
http://www.scribd.com/doc/111784828/...ch-of-Flint-MI (15 MB)

As another legendary poster has said, "Do your own due diligence. You could get hurt investing in this stuff." But I think it's a more palatable alternative to triple-leveraged inverse Venezuelan beever cheeze futures... and peer-to-peer lending.

I'll be writing a blog post on the subject. If you've had any experiences with church bonds, positive or negative, I'd love to hear your story.

[brewer12345]

Thanks for te additional examples.

Personally, I don't like any of these issues. Too levered on an LTV basis (especially on a specialized property), and the only one that has a long history has declining membership.

[Nords]

Quote:

Originally Posted by brewer12345 Personally, I don't like any of these issues. Too levered on an LTV basis (especially on a specialized property), and the only one that has a long history has declining membership.

I guess this gets back to the same types of questions that came up on the peer-to-peer lending thread:

- Does it scale? (Church bonds: with some effort.)

- How bad are the defaults? (Church bonds: so far, not so bad.)

- Are buyers adequately compensated for the extra risk? I'm not sure how to answer this one. If there was a junk bond that offered the same yields with roughly the same duration and the same (or lower) defaults then I'd go with the junk bond. But if church bonds offer higher yields than junk then I'd be tempted to chase them.

And, of course, if a junk bond fund offered the same yield as a church bond then I'd go with the junk bond fund. That scales.

[brewer12345]

I can get comfy with a flaky borrower if I am well secured. I can get comfy with no collateral if I have a strong borrower. My worry here is that we have flaky borrowers and inadequate collateral.

[Nords]

Quote:

Originally Posted by brewer12345 My worry here is that we have flaky borrowers and inadequate collateral.

I don't know what issues there are on appraising a church property. Kinda hard to "rebuild to suit" if you foreclose on The Crystal Cathedral, but maybe a nice piece of commercial property if the church is in a prefab warehouse structure.

Most of the up-and-coming churches around here (the ones presumably most likely to seek funding with a church bond) seem to be in upperclass residential neighborhoods or light commercial zones.

I also have an irrational investor bias... let's call it a "faith"... that a simple majority of whatever congregation is alive in 30 years will figure out a way to pay off the debt. Flaky or not, the low default rate seems to show a commitment.

It's hard to get objective data on this sort of asset class. Not many people looking at it, and logistically difficult to do the due diligence. And again it's difficult to assess whether the extra yield adequately compensates the average retail investor for the risk and the extra research.

I bet that at least a dozen posters on this board live close enough to each of those churches to either be a member, or to know a member, or to know their reputation well, or to be able to drive over there in 10 minutes to check that there's really a church operating at that address.

[brewer12345]

Quote:

Originally Posted by Nords I don't know what issues there are on appraising a church property. Kinda hard to "rebuild to suit" if you foreclose on The Crystal Cathedral, but maybe a nice piece of commercial property if the church is in a prefab warehouse structure. Most of the up-and-coming churches around here (the ones presumably most likely to seek funding with a church bond) seem to be in upperclass residential neighborhoods or light commercial zones. I also have an irrational investor bias... let's call it a "faith"... that a simple majority of whatever congregation is alive in 30 years will figure out a way to pay off the debt. Flaky or not, the low default rate seems to show a commitment. It's hard to get objective data on this sort of asset class. Not many people looking at it, and logistically difficult to do the due diligence. And again it's difficult to assess whether the extra yield adequately compensates the average retail investor for the risk and the extra research. I bet that at least a dozen posters on this board live close enough to each of those churches to either be a member, or to know a member, or to know their reputation well, or to be able to drive over there in 10 minutes to check that there's really a church operating at that address.

The congregations my or may not be flaky. I have no real way of knowing. In any case, nobody is contractually obligated to remain a member of the church and keep forking over contributions, so I have to be able to look to the collateral if things do go pear-shaped. We do not get to see the appraisal write-up, so we can only guess as to the methodology used. However, given that the churches are limited by bond indentures to a maximum 75% LTV for the issuance of additional bonds, I bet there is some pressure to have a nice, high value assigned to the property. The problem is that if you have to repo, the church will not be worth a fraction of stated value because the next buyer most likely will not be a church.

[JDARNELL]

Quote:

Originally Posted by brewer12345 The problem is that if you have to repo, the church will not be worth a fraction of stated value because the next buyer most likely will not be a church.

Many years ago a church we were attending got a new pastor. The church was the "Jewel" of the conference and this very business like administrative pastor took over. After about a year the new pastor got on a campaign to build a new facility. I remember one of the main reasons was there was not enough parking on Easter and Christmas. I felt like there were many ways around this and building more infrastructure was not a good use of $$. The day of the vote I was asked to observe the counting of the ballots with about 55% agreeing. Of course some people voted with their feet.

The logistics of having two facilities was horrible and I recently heard they sold one of the facilities to another denomination. Definitely a small market. Of course I did go with my wife to a spa that was in a nice converted church. Kind of felt weird though.

JDARNELL

[Free To Canoe]

Quote:

Originally Posted by JDARNELL Of course I did go with my wife to a spa that was in a nice converted church. Kind of felt weird though. JDARNELL

Church Brew Works, Award-Winning Microbrewery and Restaurant

Kind of how I felt when I went in here.