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Church Bonds
Old 10-18-2012, 09:13 PM   #1
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Church Bonds

I was asked me to post about my experiences with church bonds. Often times churches will start a capital campaign to build a new facility and instead of using banks or asking the congregation to give more they will issue bonds. There are companies that specialize in bond issues for non-profits. I use a couple and one I really like.

I started doing this back in 1997. At the time the church conference we were in wanted to raise $2M to update a camp the conference owned in the Mtns. Value was approx. $4M and they wanted to borrow $2M for their needs.

One Sunday afternoon they had the bond company rep come in and give the pitch. Many churches will try to sell the bonds to the congregation first then go out the secondary market for retail investors. In this case I requested $5K of bonds compound interest with a certain maturity at 9%. I think they were 20 yr bonds and were called in 5 yrs.

The bonds are laddered with a certain amount due every six months. Naturally the longer the duration the higher the rate. Also most issues are a combination of simple and compound.

Over time I got to know the originating bond rep and began picking up other issues when the congregation did not purchase all the bonds. Min purchase is always $500. My strategy was to build a ladder, always buying the long end, and continue to reinvest by using simple. I typically buy $750 to $1000 in each issue. I have bonds in multiple churches in different regions of the country. I did scale back my purchases in LA after hurricane Katrina as I felt I had too much exposure in one area. However now that is not an issue. Occasionally I will get a nice card from the church thanking me for investing in their issue.

I have had 2 churches that missed bond payments. They asked for the bondholders to restructure the timeline. In all cases we have and all principle and interest has been paid. I did have one that was going into default and was asked to set on the arbitration panel. I did not accept and the property was sold and all remaining principal was paid.

At first I would read the prospectus. Not any more. I have a standing order and when I get the info on the issue I call my rep and ask 3 or 4 questions.

I like to know:
1. How much of the bonds did the church members buy? ( I believe that if the congregation is “bought in” members are less likely to leave if they get mad at the church and they will continue giving to support the project) Also many members will eventually turn their bond over to the church as a donation.
2. What is the debt to equity ratio?
3. What is the cashflow?
4. I ask did the pastor support the issue or is he ticked off. Churches take on the characteristic of their Sheppard.

I always buy the long end because many churches will call the debt early. Churches want out of debt. I have an IRA account and also taxable account.

Today I talked to my bond rep and picked up 3 issues in the mid 7% range. I should have the prospectus on all three in a week or so. I am happy to share one with the group so you can see.

My going in position is that when I make the purchase it might as well be a straight donation if it goes south. I rationalize that I am helping a good cause so it is what it is. I believe people go to church during bad times and give more in good times.

JDARNELL
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Old 10-19-2012, 09:01 AM   #2
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My going in position is that when I make the purchase it might as well be a straight donation if it goes south.
So... in that case, do you deduct it as a capital loss or a charitable donation?
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Old 10-19-2012, 09:20 AM   #3
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Who do you contact to buy church bonds I know very little about them?
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Old 10-19-2012, 09:50 AM   #4
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Thanks very much for the overview, JDarnell. Are these bonds registered? Taxable?

I would love to see a prospectus if you can share one.
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Old 10-19-2012, 10:41 AM   #5
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Church Loans & Financing for Church Construction & Church Renovation=

SHARE is one of the companies that I use for the purchase. I actually like this one the best as their underwriting is more conservative than a couple of others. The rep I work with is Ben Foster.

I do use others when there is not enough excess for me to pick up with these guys. Here is another one. These guys seem more stand off in their dealing on a personal level and lower rates. Church Bond Investment at Rives, Leavell & Co. for fixed income or growth investment.

There are 2 main companies that service the bonds. This one is where the IRA for my church bond activity is located. Trust Management, Inc. - A Texas Trust Company

Just yesterday I got a check for 6 months interest on a 8% bond I bought a couple of years ago. Yes bonds are registered.

Also for the question on do I deduct a loss as charity I never have before or even thought about it really I guess as I have not been in this situation. It was more of a statement on my views as to how I approach it when I make the decision to invest.

If you are interested I would encourage you to do your own homework in this area as advice is cheap and you get what you pay for.


In full disclosure: I have no affiliation with any of these companies other than I use their services for my own purchases of church bonds. I have about $50K spread around in this area.

Good luck!

JDARNELL
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Old 10-19-2012, 10:53 AM   #6
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JDARNELL by reading your post you have had none that defaulted on you.
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Old 10-19-2012, 10:57 AM   #7
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This might help folks learn more about the subject. Church Bonds: Winners or Sinners? - WSJ.com
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Old 10-19-2012, 10:58 AM   #8
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Thanks. If you can share a prospectus at some point, please do.
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Old 10-19-2012, 11:15 AM   #9
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Sorry mis spoke on the registration question. Looked on Rivells website and they say theirs is not. Not sure about Share. I use Share mostly.

No defaults in the last 15 yrs just the two restructurings which were in the 2010. Clearly they were economic driven.

Once I get a the next round of prospectus I will post them so you can reivew.

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Old 10-19-2012, 12:05 PM   #10
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Originally Posted by JDARNELL View Post
I started doing this back in 1997. At the time the church conference we were in wanted to raise $2M to update a camp the conference owned in the Mtns. Value was approx. $4M and they wanted to borrow $2M for their needs.
Good summary, thanks. I wish we had at least that much history to look at on P2P lending.

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In this case I requested $5K of bonds compound interest with a certain maturity at 9%. I think they were 20 yr bonds and were called in 5 yrs.
The bonds are laddered with a certain amount due every six months. Naturally the longer the duration the higher the rate. Also most issues are a combination of simple and compound.
At 7-9% APY I guess you're holding to maturity whenever you can. Do you usually seek a particular duration? How often are the bonds called?

They're still paying you with paper checks, right? Although mobile deposit has greatly reduced my paper-handling hassle factor.

Are you paying any "customer service" fees to the companies, or are all the fees paid by the churches as part of the bond issue?

You've accumulated $50K in church bonds. If you wanted to scale that up to $250K (assuming that's a good idea in the first place) would you buy five times as many bonds or would you invest 5x as much in each bond that you buy? Would it be 5x as much work or just a matter of gulping and putting 5x as much into one church's issue?
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Old 10-19-2012, 05:21 PM   #11
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Our church refinanced its mortgage and got the funds to build a new building using church bonds through Share several years ago. Our congregation bought all of the bonds (in fact the issue was significantly oversubscribed). They are zero coupon bonds, so the only actual check you get is at maturity when you get back principal and interest (although you pay taxes on the interest each year). We used them as college savings instruments - it was quite nice getting that check just in time for one of the tuition payments each year. We still get info from Share on other bonds out there but I haven't bought any others - may look into it again if the rates are that high now.
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Old 10-19-2012, 09:07 PM   #12
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Good summary, thanks. I wish we had at least that much history to look at on P2P lending.


At 7-9% APY I guess you're holding to maturity whenever you can. Do you usually seek a particular duration? How often are the bonds called?

They're still paying you with paper checks, right? Although mobile deposit has greatly reduced my paper-handling hassle factor.

Are you paying any "customer service" fees to the companies, or are all the fees paid by the churches as part of the bond issue?

You've accumulated $50K in church bonds. If you wanted to scale that up to $250K (assuming that's a good idea in the first place) would you buy five times as many bonds or would you invest 5x as much in each bond that you buy? Would it be 5x as much work or just a matter of gulping and putting 5x as much into one church's issue?
I really don't seek a particular duration now. I did at first to fill in a ladder. I think the ones I just picked up are in the 22 yr range with a 7.25 to 7.75 % range. Of course I could be on the losing end if rates ever climb real fast. This is one reason I do simple as to be able to buy more in new issues.

Bonds aren't called to much. I usually have a couple a year which really stinks. Yes paper checks and I have 3 or 4 on the kitchen island. I pay a $37.50 service fee for the IRA. Nothing for the taxable account.

As for scaling I guess you could do it that way. My first choice would probably be to go for more issues for diversification but again I think the factor is finding the issues. I know the one that I was asked to be on the restructuring committee the guys that actually did it were holding $40k plus and were from that congregation and wasn't really interested in working that hard for what I had in it. Of course that one turned out fine.

I am sure if I had time I could find more companies that issue bonds. I know the CEO of Share has told me that they go to a convention each year for an Association for their industry. He was also willing to tell me his competitors and encourages me to use them if he doesn't have what I want. He has also told me a couple of times that if it is a really big issue a couple of firms will team up to help. He has never talked bad about his competitors to me however he has said that some he will not do business with as he disagrees with their approach.

Many of the churches have more demand than supply. I like the ones that have more than 1/2 of the bonds purchased in the church. I think it is a very good strategy for a congregation to finance this way if they have made the decision to use financing as the congregation is committed to the project. I wonder what % of bonds issued to church members are actually eventually given to the church. I imagine an older couple in their will forgiving the bond to their congregation. I have purchased bonds that immediately went to retail investors as there was no push in the congregation.

It is also interesting how the different companies will interact with you on the issues. One will not send emails or anything technology related as everything is snail mail. They want the personal interaction. Another wants to do everything online. I like the "personal" touch. I have one company rep that sends me Christmas cards every year with a summary of their mission trips for the year. There are times where it takes a few days for her to get back to me as her first priority is their mission work.

Another Rep I use is all business and likes to play the "I know everything role" I am indifferent when I am trying to add bonds.

JDARNELL
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Old 10-19-2012, 10:35 PM   #13
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Thanks.

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I think the ones I just picked up are in the 22 yr range with a 7.25 to 7.75 % range. Of course I could be on the losing end if rates ever climb real fast. This is one reason I do simple as to be able to buy more in new issues.
I guess if you're "long & wrong" then you just keep cashing the checks until it matures.

If 7.25% was lower than inflation for 22 years then I'd have bigger problems to worry about...
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Old 10-20-2012, 08:16 AM   #14
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Thanks.


I guess if you're "long & wrong" then you just keep cashing the checks until it matures.

If 7.25% was lower than inflation for 22 years then I'd have bigger problems to worry about...
I agree. For now I am looking like a genius (at least in the mirror)

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Old 10-25-2012, 11:06 AM   #15
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I recieved a few different prospectus this week and I have one scanned for the folks that are interested in seeing what type of info is provided. File is 24MB. Mods can you help me get it posted or find a place to put it?

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Old 10-25-2012, 12:05 PM   #16
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Sounds interesting and something truely different (at least to me).
Thanks for posting.
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Old 10-27-2012, 12:11 AM   #17
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I recieved a few different prospectus this week and I have one scanned for the folks that are interested in seeing what type of info is provided. File is 24MB. Mods can you help me get it posted or find a place to put it?
JDARNELL
Mods, I was going to post this prospectus on my blog and link to it. However my host informs me that I'm now limited to 10 MB. Even zipped the file is still over 20 MB.

Can you modify this thread to allow a 24.928 MB document upload? It's a 94-page PDF.

In the meantime, the URL for the document is at my Scribd account:
Church Bond Issue
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Old 10-30-2012, 12:02 PM   #18
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Here's the church bond prospectus as an attachment to this post. It's worth a read-- even if you just browse the interest rates on the first page.

My thanks to Andy R, Tech Admin, and Janet H for temporarily tweaking the PHP to enable this file upload. While coping with Hurricane Sandy, no less.

Depending on your bandwidth, the 25MB PDF will take a couple minutes to download and display.
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File Type: pdf Churchbondissue.pdf (24.34 MB, 18 views)
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Old 10-30-2012, 12:26 PM   #19
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Thanks for all the efforts to get this one up.

OK, so somebody tell me why this isn't a scary bond. Extended maturity, a pretty darned leveraged balance sheet using probably inflated collateral values, spotty revenue trend, and a relatively short operating history. All that and rates are 5 to 7%. What is there to like here?
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Old 10-30-2012, 01:00 PM   #20
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