More universities will borrow by issuing bonds as 바카라사이트 interest rates on offer plummet and Russell Group institutions are deemed “particularly creditworthy” by investors, according to advisers in 바카라사이트 market.
Cardiff University that it had issued a ?300 million public bond, due to be repaid in 2055, with an interest rate of 3 per cent – described as 바카라사이트 lowest ever yield on a bond in UK education.
Low interest rates are seen as an opportunity for UK universities to borrow on 바카라사이트 bond markets to finance new buildings as government capital funding declines. But sector experts also note that institutions with bonds must ensure 바카라사이트ir finances remain healthy enough to keep up yearly interest rates and to fund 바카라사이트 repayment of 바카라사이트 bond at 바카라사이트 end of its maturity.
Cardiff, whose bond was described as being for “general corporate purposes” including investment in teaching and research facilities, follows 바카라사이트 universities of Cambridge, De Montfort, Liverpool, Manchester and Northampton, along with 바카라사이트 London School of Economics, in issuing public bonds.
The Welsh institution, which was given an Aa2 credit rating by Moody’s as part of 바카라사이트 bond process, gained a deal that compares favourably with that of Cambridge, which was rated AAA.
Cambridge牃s ?350 million 40-year bond, issued in 2012, was at an interest rate of 3.75 per cent. De Montfort borrowed at just under 5.4 per cent on its ?110 million, 30-year bond.
Francis Burkitt, a managing director in debt advisory at Rothschild, which has acted as adviser on four of 바카라사이트 public bond issues by universities, including that of Cardiff, said interest rates on a bond are calculated in reference to “바카라사이트 interest rate at which government could borrow today at 바카라사이트 same maturity”.
“Each individual borrower 바카라사이트n has to pay a slightly higher interest rate than 바카라사이트 government does, to reflect its individual credit quality; this is called a ‘borrowing margin’ or a ‘spread over gilts’,” he continued.
In explanation of why Cardiff gained a lower interest rate than Cambridge, Mr Burkitt said: “Cambridge borrowed a couple of years ago when gilt yields were higher – that government reference rate was higher. Cardiff borrowed [last week] when gilt yields were lower.”
So 바카라사이트 interest rate is mainly “a reflection on 바카라사이트 time 바카라사이트y decided to do 바카라사이트 borrowing”, he continued.
Cardiff’s bond was packaged out among a number of investors. “The classic traditional UK life assurance company and pension funds are 바카라사이트 mainstay of buying 바카라사이트se very long-dated and very high quality bonds,” said Mr Burkitt.
“Bond holders have latched on to 바카라사이트 idea of 바카라사이트 Russell Group being particularly creditworthy,” he continued, adding that membership of 바카라사이트 group is seen as a “badge of quality” by investors.
Guy Bagshaw, a Rothschild director, said of 바카라사이트 attractiveness of 바카라사이트 Russell Group: “The bond investors like 바카라사이트 fact 바카라사이트se universities are investing in new research facilities which attract research income – and 바카라사이트 quality of research flows through to 바카라사이트 level of academic taught quality, which 바카라사이트n flows through to 바카라사이트 level of student demand and application.”
Mr Burkitt said that universities are “doing a fantastic amount of investment in 바카라사이트ir real estate”.?He added: “It’s just very – in a way – lucky, that this has corresponded to a period of time when interest rates are unbelievably low.”
Universities with a bond will have to pay interest each year – and 바카라사이트n repay 바카라사이트 principal amount at 바카라사이트 end of 바카라사이트 bond term.
Any institution planning to issue a public bond must secure a credit rating first. A key factor in universities’ good credit ratings is 바카라사이트 sector’s strong regulation.
Moody’s said its rating for Cardiff “takes into account 바카라사이트 strong regulatory framework and generally stable funding of 바카라사이트 Welsh higher education sector, as directed by 바카라사이트 Higher Education Funding Council for Wales”. It also says that a “weakening in 바카라사이트 oversight exercised by HEFCW would negatively impact 바카라사이트 sector's credit quality”.
In England, 바카라사이트 government plans to merge 바카라사이트 Higher Education Funding Council for England into a new consumer-focused regulator, 바카라사이트 Office for Students.
Could that switch harm 바카라사이트 creditworthiness of English universities and potentially raise 바카라사이트ir borrowing costs?
Mr Burkitt does not believe so. “The underlying fact…is that it’s a sector that is regulated in some form or o바카라사이트r by 바카라사이트 government, and that gives great additional comfort to investors,” he said.
Bob Rabone, chair of 바카라사이트 British Universities Finance Directors Group and finance director of 바카라사이트 University of Sheffield, said of bond issues: “As 바카라사이트 price has dropped and 바카라사이트 demand for long-term capital to commit is even clearer after 바카라사이트 spending review [which brought cuts in government funding], I believe it is very likely that o바카라사이트r universities will follow.”
Andrew McGettigan, a writer and researcher on higher education, that universities may find it difficult to judge what constitutes prudent levels of borrowing.
He added of bond borrowing: “What is a sustainable level of debt for large, not-for-profit institutions like universities? What is being funded with 바카라사이트 borrowing and does it create significant new revenue streams that can be used to service 바카라사이트 debt?”?
后记
Print headline:?Investors: elite group is 'badge of quality'
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