Ar bit rage Fi nan cing for No npr ofit Ca pit al Pr ojects: The Ca se Stu dy o f th e Gu th rie Thea ter

Jay Kiedrowski, Treasurer, Guthrie Theater Senior Fellow, HHH Institute, U of MN April 2, 2005

Gu thrie Th ea ter Ba ck grou nd
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First classical regional theater in U.S. Established in 1963 by Tyrone Guthrie Artistic Director, Joe Dowling, began in 1996 His new vision for Guthrie Theater: “National Theater Center” Need for new three-stage theater Original Cost $75 million


New Gu thrie Th ea ter

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Guthrie Theater hired world class architect, Jean Nouvel, in 2001 Project grew to $125 million by 2003 Funding for the project was dependent on $ 40 million of State Bonding, $75 million of private contributions, $10 million from unidentified sources Project needed to break ground by fall of 2003

New Gu thrie Th ea ter


Realit y
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MN Legislature provided only $25 million of bonding in spring 2003. Fundraising goal needed to be increased to $85 million in May 2003 An additional $15 million was needed to complete the financing Financing package needed to be in place to break ground October 1, 2003 or cost of project would increase substantially

Creat iv e Fin an cin g

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Finance and Investment Committees of Guthrie met with Public Finance Bankers Use of Arbitrage Financing Explored Tax-exempt bonds could be sold to finance construction (Expected cost 2.5%) Private contributions could go into endowment until project was completed (Expected return of 6.5%) Back-up was to carry the deficit in debt

Requ iremen ts for Arbi tra ge
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Guthrie Board approval City of Minneapolis approval MN Commissioner of Finance approval Letter of credit from local banks Detailed schedule of private contributions Definitions of collateral and artistic control


Endo wmen t In vestmen t Po licy C han ges
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OLD Large Equity Small Equity Inter. Equity Fixed Income Hedge Funds

30% 15% 20% 25% 10%

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NEW Large Equity Small Equity Inter. Equity Fixed Income TIPS Hedge Funds

20% 10% 20% 5% 15% 30%

200 3 O utcome

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$85 million in AAA tax-exempt 501(c)(3) variable rate 20-year demand revenue bonds were sold by the City of Minneapolis (with $65 million to be retired in 60 months) Guthrie pledged general assets for letter of credit on bonds, and accepted possibility of debt Issues of collateral and artistic control resolved Private contributions were put in Guthrie Endowment as received Project broke ground on time

Up date 2 005
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Project is on time and within budget Opening scheduled for late-spring 2006 $85 million in bonds still outstanding at average cost of 2.5% Net endowment return has been $4 million in excess of normal balance returns and borrowing costs for first 16 months $2 million of excess return “to be taken off the table” if 2005 goes negative

New Gu thrie Th ea ter


Lesso ns L earn ed
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All stakeholders need to understand the risks vs. rewards Endowment investment policies should be changed to protect down-side Energetic collaborative effort required of all stakeholders to put the arbitrage in place Bonding/Endowment arbitrage can be a useful tool, but requires ongoing monitoring and reasonable markets

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