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
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