FAQs on COVID-19 Bond Offering
June 11, 2020
What conditions led the Foundation’s Board to take such unprecedented action?
The COVID-19 pandemic presents a threat to the global economy, global health, and our well-being. The confluence of historic crises have exposed deep racial and socioeconomic disparities and inequities that take a disproportionate toll on people of color and other historically marginalized communities, in particular African Americans. Though the pandemic is wreaking tragedy across the world, an opportunity is emerging to reinvent the critical systems that people and places need to thrive. Our systems and structures must be reinvented and rebuilt.
MacArthur is seizing this moment to play a leading role in the transformation that must follow COVID-19. We are committed to ensuring that our response to the pandemic is focused on supporting the reinvention of systems that create a just, equitable, and resilient world. Our work should be strategic, responsive, and deliberate, and we will lean into our history of harnessing creativity, collaboration, and transformational solutions to solve critical problems.
The Foundation is concerned that the nonprofit sector will experience significant harm from the economic fallout of COVID-19. In the U.S., nonprofits employ more than 10 percent of the private workforce or approximately 12.3 million people. Yet, the data about the financial health of the sector is quite grave:
- According to a Nonprofit Finance Fund survey in 2018, almost 75 percent of nonprofits do not have six months of cash reserves.
- Nonprofits are financially distressed due to postponed fundraisers, canceled artistic seasons, lost corporate sponsorships, reduced grants from foundations and individual donors and the possibility of lost government contracts due to shortfalls in state and municipal budgets.
- Nonprofits anticipate a drop in giving greater than experienced after the 2008 financial crisis and the recovery will likely take longer.
MacArthur is a multibillion-dollar foundation. Why issue a bond, why not just take the funds out of the endowment?
The pandemic has caused significant volatility in the capital markets resulting in a reduction of all foundation and university endowments, including MacArthur’s. Given the likely continued market uncertainty, investment professionals argue against liquidating assets during times like these if we are committed to our fiduciary responsibility of long-term stability and capital preservation for future grantmaking. After numerous meetings and review of financial analysis and market performance scenarios, MacArthur decided to issue a debt offering.
We will take advantage of the Foundation's anticipated strong credit rating, financial health, and the historically low cost of borrowing to make funds available that allow the Foundation to increase our annual payout over the next three years. MacArthur will be among few foundations to issue a taxable bond for the purposes of grantmaking.
What are the risks associated with issuing this bond at this time, given the volatility in capital markets?
While taking on debt can increase financial risk to any organization, MacArthur’s anticipated strong financial health, low level of existing debt, and low cost of new borrowing will allow us to manage the debt service created by the bond issuance without adversely affecting our ability to continue our program work—even after the pandemic ends. Issuing the bond reflects our commitment to responding to the crisis while avoiding permanent reduction of spending power of the Foundation’s endowment.
Do you hope that other foundations will follow suit?
Yes, we have worked with other foundations to coordinate joint action in response to the crisis. Together, our goal is to make more than $1.7 billion in additional resources available. The donors thus far include: the Doris Duke Charitable Foundation; Ford Foundation; W.K. Kellogg Foundation; and the Andrew W. Mellon Foundation. Each foundation’s anticipated commitment is up to: Ford $1 billion; Kellogg $300 million; MacArthur $125 million; Mellon $200 million; Doris Duke $100 million.
Are the foundations making grants together?
No. Each foundation will determine priorities for the distribution of the new funds based on its grantmaking guidelines and priorities.
In the aggregate, funds will cover grantmaking aligned with each foundation's mission, including racial equity and social justice, arts and culture, higher education, human services, the environment, and other areas to provide financial support to communities serving the public interest and common good.
Why did you and other foundations not issue a single bond to raise more money?
It would be too complicated to comingle our balance sheets to achieve a single offering. In order to generate additional funds for grantmaking, the foundations are using funds from endowment or issuing long-term debt via the capital markets.
Who are the underwriters for the bond issue?
We will use Morgan Stanley to underwrite our bond offering. Morgan Stanley has a diverse team and is committed to engaging other diverse underwriters.
This is a specialized market and we will be well served to have an experienced and skilled team managing our offering to clients with whom they have long standing relationships.
Why is this considered a new approach to philanthropy?
Innovation, creativity, and bold ideas often emerge in crisis. While foundations have issued debt for construction and building projects, it is uncommon for foundations to issue debt for grantmaking purposes. Issuing debt at this scale is a new approach for the field. Additionally, this is an unprecedented collaboration that points the way to a more nimble, high impact, and equitable approach to grantmaking.
How much new capital could be generated for nonprofit organizations if this approach is adopted across the sector?
If broadly adopted, billions of new dollars could be injected into the nonprofit sector, providing much needed financial assistance at a time when the sector is suffering from postponed fundraisers, cancelled artistic seasons, reduced corporate sponsorship, and less funds from endowments and individuals reliant on market returns for donations.
Will you issue another bond if the impact of COVID-19 lasts more than three years?
This is a once-in-a-century crisis. This undertaking is being done to ensure our new grantmaking focuses on remaking systems to be more just, equitable, and resilient in the future. We seek to reimagine a stronger civil society and a more just and equitable world.
Will the money be distributed between global and U.S based organizations?
We expect the final program to address a range of issues and geographies as we develop the guidelines with our staff, Board, and others. While precise guidelines are not yet determined, we intend to hasten recovery and reinvention for nonprofits and communities, including potentially: pooled recovery funds in our home communities, Chicago, India, Mexico, and Nigeria.
When do you anticipate MacArthur will issue bonds and begin grantmaking?
We will be issuing bonds to fund our grantmaking and hope that will be completed by early September. We anticipate that grantmaking from this special initiative will likely begin in the fall.
Will additional grantmaking require MacArthur to increase its staff and administrative costs?
No new, permanent staff will be hired. To support the efficient execution of increased payout, the Foundation may hire a limited number of consultants for a time-bound engagement to augment program staff capacity.
Why not use the funds for emergency relief rather than institutional support to nonprofits?
The Foundation has helped organize a number of emergency relief funds to provide emergency food and supplies, mortgage and utility assistance. In addition to the Chicago Community COVID-19 Response Fund we helped launch in April, MacArthur has joined with others in the philanthropic community to create the Illinois COVID-19 Response Fund, the Arts for Illinois Relief Fund, and the Chicago COVID-19 Journalism Fund. However, there needs to be a focus hastening recovery and reinvention for nonprofits and communities.
Will MacArthur's $125 million in new grantmaking really have that much impact on such a large problem?
MacArthur cannot solve major, systemic problems by itself; we hope that other donors will join us and that the grant recipients are able to strategically leverage our grants. Our primary goal is to support key organizations that are advancing the fight against inequality at a time when the need is more pressing than ever.
Will these funds be administered and distributed in the usual way?
Each foundation will determine priorities for the distribution of the new funds based on its grantmaking guidelines and priorities.
MacArthur will continue to exercise due diligence in the administration and distribution of grants while making every effort to respond in a timely way to the pressing needs of the sector. New spending will focus on remaking systems to be more just, equitable, and resilient in the future.
The Foundation will prioritize fields where we are currently invested, have strong partners and networks, and/or have a comparative advantage as a leader. We also will be alert to emerging organizations and coalitions that may be important to support in targeted areas of work.
Will you be publicly announcing the recipients of these funds?
Yes, we will continue our current practice of communicating grant awards through our website. And we will evaluate and share what we learn about the work supported by our grantmaking.