Case Study

U.S. Department of Treasury CDFI Bond Guarantee Program (BGP)

BG Program Case Study: By the Numbers
  • For over 6 years, Summit has provided underwriting and portfolio management support the CDFI Fund.
  • Summit built data analytics tools to help manage the BG Program’s $1.6b portfolio comprising of 25 CDFIs.
  • Financing provided via 12 asset classes including rental housing, charter schools, and commercial real estate.

Challenge: The CDFI Fund needed to set up the complex Bond Guarantee Program and manage its rapidly growing portfolio.

The Community Development Financial Institutions (CDFI) Bond Guarantee Program (BG Program) was authorized under the Small Business Jobs Act of 2010 with the objective of providing long-term low-cost capital to Certified and Eligible CDFIs to spur economic growth in low-income communities throughout the nation. To accomplish this, the CDFI Fund required assistance with programmatic establishment and providing financial modeling and subsidy calculation services as well as federal credit training. The CDFI Fund initially engaged Summit in 2011 to support the development and implementation of the BG Program.

Summit’s Solution: Summit leveraged subject matter expertise in community development financing and data-centered best practices to set up the program and manage the various associated risks.

Summit supported the CDFI Fund in developing the BG Program‘s financial structure and accompanying documentation. In addition, Summit assisted the CDFI Fund in developing internal control and risk management policies and procedures. Summit has also developed the BGP credit subsidy model in compliance with Fair Credit Reporting Act (FCRA) and relevant Office of Management and Budget (OMB) Circulars, as well as risk rating tools and various sensitivity analyses surrounding default and recovery risk to support the CDFI Fund.

Because the BG Program is a zero-subsidy federal credit program, the CDFI Fund must ensure each applicant demonstrates sound credit quality. To assist the CDFI Fund in evaluating the credit risk of applicants, Summit developed a rigorous risk rating methodology (Risk Rating Tool) that standardized credit risk evaluation of CDFI applicants. Summit presented the Risk Rating Tool and a proposed method for calculating the credit subsidy of underlying bond loans to the OMB, which approved Summit’s Risk Rating Tool for use in the BG Program.

To date, Summit has provided the BG Program assistance in conducting extensive underwriting for applicants to the BG Program. In addition to providing assistance during the application rounds, Summit provides ongoing portfolio monitoring assistance to the BG Program to ensure participants maintain a high level of credit quality as well as compliance with all the BG Program requirements and financial covenants, including quarterly reviews of borrower financials, monthly reviews of pledged collateral, and ongoing reviews of compliance with reporting requirements.

Result: BG Program must continue portfolio monitoring and risk management efforts to prevent future defaults.

To successfully navigate these challenges and manage the BG Program in the future, the CDFI Fund must have access to contractors that bring recent and relevant experience in credit and underwriting expertise within the CDFI industry, portfolio management expertise, data management and analysis, technology applications and program management.