On business: Expansions are thriving with help of community investment

In recent months, Era Laboratories, a water-testing business in Duluth, consolidated operations into a larger building.

In Red Wing, Michelle Finholt's Rainbow Child Care Center expanded to new quarters, added employees and trimmed its family-waiting list by 50 preschoolers and infants.

And Welna Hardware, a family-owned enterprise in a century-old Minneapolis neighborhood, invested heavily to buy and refurbish an abandoned adjacent building that's now selling a lot more paint, windows and building supplies to landlords, homeowners and contractors on the revitalized near South Side.

Each of these business expansions was financed at least in part by a neighborhood-based, nonprofit community-development lender.

Those community development loans, in turn, were sold to investors earlier this month as part of a record $46.1 million, 17-state, 128-loan portfolio generated by 37 community-based lenders and packaged by the Minneapolis-based Community Reinvestment Fund (CRF).

Who bought those loans? Some of the nation's largest banks and insurers. The CRF, now in its 15th year, was started as a conduit to buy loans from small lenders in hard-pressed inner-cities and rural towns, package them as asset-backed securities and sell them to large investors.

This so-called "securitization" process is similar to the one widely used in the home mortgage industry.

This 17th loan-to-bond offering by CRF was a landmark because it is the first community-development issue to be rated by a major debt-rating agency.

Standard & Poor's put a AAA rating on the highest class of notes -- $26 million of what is dubbed the "CRF17" offering.

The entire issue of $51 million, which includes about $5 million in CRF capital as a "credit enhancement," was underwritten by Piper Jaffray & Co. and purchased by investors such as U.S. Bancorp, Fannie Mae, Wells Fargo, Met Life, Merrill Lynch and Prudential Financial.

"This is a breakthrough for the community development finance industry," CRF Chief Executive Frank Altman said. "The capital markets rely on third-party rating agencies such as S&P. With this 'rated' transaction, we were able to reduce the amount of capital that CRF must tie up in the deal."

(Although CRF has less of its own capital in the deal, it ranks behind other creditors in the event of a default and must wait until the end of the transaction to get paid.)

The bond offering, with a weighted average coupon yielding 4.95 percent, was sold out.

The United Methodist Church and the Evangelical Lutheran Church of America also were investors.

Wall Street Without Walls, an alliance of financial professionals, counseled CRF on navigating the debt-rating process.

Grow, biz, grow

Companies across Minnesota generally are upbeat about the future, according to first-year findings of Grow Minnesota, a business-retention and growth initiative of the Minnesota Chamber of Commerce.

Task force representatives, who visited about 600 Minnesota businesses, found:

• A general uptick in business and expansion plans.

• Applause for "Minnesota's high quality of life" despite what is perceived as its high taxes and burdensome regulations.

• Strong business support for an improved state transportation plan (as recently called for by the chamber) and a streamlined system for getting local building permits.

• A response to "globalization" with sometimes-painful job cuts and productivity enhancements in recent years that has resulted in greater competitiveness, improved results and, eventually, more employees.