BOAML get the US SIB market off to a cracking start with a $13.5 million bond to help rehabilitate ex-convicts, similar to the UK Peterborough bond – let the good DIBs/SIBs roll!

‘Pay For Success Bonds’ Drum Up Interest
Barron’s

Last week, Bank of America Merrill Lynch announced it had raised $13.5 million from over 40 private and institutional clients, financing a reform initiative for previously incarcerated New York state criminals. The proceeds will provide training and employment programs for 2,000 newly released ex-cons in hopes of reducing recidivism. If successful, the state will save millions in incarceration and criminal justice system costs; a portion of those savings will then be paid to BofA’s philanthropic-minded investors, a market-rate financial return for those who helped finance the state’s reform program.

In the BofA deal, if the program reduces recidivism by at least 8% and/or increases the former prisoners’ post-release employment by five percentage points, then investors get their money back. Further drops in recidivism or employment gains, could, in the best case, earn returns of up to 12.5% annually over the project’s five-and-a-half year term. The state would, only in that optimal case, realize up to $7.8 million in savings, even after the investors walked away with their cut.

The Center for Employment Opportunities (CEO), a nonprofit focused on finding employment for former prisoners, was selected by New York State for the project. CEO’s programming was independently evaluated by the social-impact evaluator MDRC, as contracted by the Department of Health and Human Services, with results showing a reduction in recidivism of 16% to 22% during the years 2004 to 2008.