Ford Foundation announces ‘historic' $1bn Social Bond
One of the USA’s giant grantmakers has announced a plan to offer $1bn of social bonds for sale to fund a massive, anti-Covid-19 grantmaking programme.
The Ford Foundation launched the plan this week “in response to the existential threat caused by Covid-19 to non-profit organisations”.
In doing so, Ford said it would be “the first non-profit foundation in history to offer a labeled social bond in the US taxable corporate bond market”.
The proceeds of the bond sale will enable the foundation to pay out more than 10% of the value of its total endowment in 2020 and 2021. In its most recent financial ‘snapshot’ published in July 2019, Ford’s net assets stood at just over $12bn.
In a blog announcing the move, the foundation's president Darren Walker wrote: “Unprecedented times call for extraordinary solutions, and that’s why we have decided to issue a social bond – the first ever by a foundation on the United States taxable corporate bond market – to ensure nonprofits can carry on their important work to serve the world’s most vulnerable communities.
We will focus on funding under-resourced areas in the US and around the world, and stabilising and strengthening organisations we believe have what it takes to lead us through recovery to build a more just, equitable world
“The proceeds of the bond will enable us to nearly double our grantmaking from approximately $550m per year to more than $1bn. We will focus our support on funding under-resourced areas in the US and around the world, and stabilising and strengthening organisations we believe have what it takes to lead us through recovery to build a more just, equitable world.”
Ford said it could not address the challenges alone, so has partnered with four other institutions “that share our commitment to helping nonprofits doing the hard work of social justice emerge from this global pandemic stronger and more effective”.
It added: “Our hope is that more funders, investors and individual donors will see the integral role [nonprofits] play in society, the economy and in upholding the very idea of democracy, and join us to ensure they carry on their invaluable work today and into the future.”
Our hope is that more funders, investors and individual donors will see the integral role nonprofits play... and will join us to ensure they carry on their invaluable work
Ford joins the Doris Duke Charitable Foundation, MacArthur Foundation, W.K. Kellogg Foundation, and Andrew W. Mellon Foundation in a collective effort to increase their annual grantmaking. The five foundations anticipate over $1.7bn of increased funding above normal pay-outs over approximately two years.
The Social Bonds Series 2020 will be underwritten by Wells Fargo Securities and Morgan Stanley. There will also be a group of diverse co-managers who will participate in the offering.
Why does a $12bn foundation need to borrow money?
Essentially the 'social bond' is a massive I.O.U. through which the Ford Foundation can raise emergency cash for grantmaking without dipping into its own endowment.
The Foundation's said its trustees wanted to avoid having to liquidate any of the foundations assets given the uncertainty of the market and the importance of maintaining long-term stability and capital growth for future grantmaking. In light of this, Ford president Walker suggested considering a long-term debt offering.
After numerous meetings and review of financial analysis and market performance scenarios, the Ford trustees approved a debt offering of 30 years or longer. The exact term of the bond will be determined based on market conditions at the projected offering date of late June.
The term 'social bond' may cause some confusion among those who are more used to discussion about 'social impact bonds'. The two are not the same thing: while Ford's 'social bond' is an I.O.U. between lender and borrower, a 'social impact bond' (SIB) is a contract with the public sector or governing authority, whereby it pays for better social outcomes in certain areas and passes on the part of the savings achieved to investors. A social impact bond is not a bond as investors woudl normally understand it, since repayment and return on investment are contingent upon the achievement of desired social outcomes; if the objectives are not achieved, investors receive neither a return nor repayment of principal.
'Once in a century crisis'
Ford president Walker said: “We are facing a once-in-a-century crisis, and we must respond in unprecedented ways to sustain organisations that are advancing the fight against inequality at a time when the need is more pressing than ever.”
He continued: “The nonprofit sector will be fundamentally upended and diminished by the economic fallout from Covid-19. The proceeds of the Social Bond sale will support and stabilise social justice, human services, arts, and cultural organisations who must be essential voices in influencing the recovery and reimagining a new normal that is more just and inclusive.”
Sally Bednar, managing director at Wells Fargo Securities, commented: “The market is increasingly focused on socially responsible investing, and the Ford Foundation's bond offering is an excellent opportunity for investors to put money to work in a high-quality credit with an impactful mission.
“Wells Fargo is honoured to bring this ground-breaking financing to market, particularly as it reflects our company's dedication to supporting organisations that support underserved communities.”
The Ford Foundation has backed social change worldwide for more than 80 years, with a focus on democracy, tackling poverty and injustice, international cooperation, and “human achievement”. With headquarters in New York, the foundation has offices in Latin America, Africa, the Middle East, and Asia.
The foundation said its primary goal with the bond would be “to fortify key organisations that are advancing the fight against inequality at a time when communities who are most vulnerable have been hit hardest by the pandemic”. It added in a statement: “Offering multi-year, general operating support – which is a signature of the kind of grants Ford provides – to these organisations will help build resilience, durability, and sustainability now and in the future.”
The Social Bonds have been assigned Aaa/AAA credit ratings from Moody's Investors Service and Standard & Poor's, respectively. Sustainalytics has provided a Second Party Opinion on the alignment of the foundation's Social Bond Framework with the International Capital Market Association's Social Bond Principles.
According to a Nonprofit Finance Fund survey in 2019, only 25% of US nonprofits have at least six months of cash reserves on hand. In a recent survey by the Charities Aid Foundation of America, 73% of nonprofits said they had already seen a decline in contributions, and half said they expect to see revenue decline by more than 20% over the next year, while the need for services is expected to increase due to the coronavirus pandemic.
The foundation conceded that the social bond was “an unconventional idea” – but said that after reviewing financial analysis and various scenarios, its trustees “endorsed the issuance of the social impact bond as an innovative solution that achieved both objectives of increasing resources for grants and not taking capital out of the endowment at a critical time of market volatility”.
Photo credit: Ford Foundation
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