A burst of universities and even schools are issuing bonds and private placements, after many years during which bankers were more often disappointed by this sector than rewarded. Five educational institutions have hit the market since April, including King’s College London, University College Oxford, the University of Liverpool and Eton College.
They add to the (at least) nine universities and schools that have borrowed since July 2012, including Cambridge, Manchester, London School of Economics and Christ’s Hospital school.
Only a few of the deals have been large — Cambridge borrowed £350m and Manchester £300m. But though most are bijou, these are world famous names making their market debuts. For Eton it was the first time the public school had borrowed in its 575 year history.
There is more to come. Universities are in an arms race for students, professors and research grants, so are eager to build new facilities and accommodation.
Many of the issuers so far have been members of the Russell Group — the top 24 UK universities — but not all.
No university will be a regular borrower, however. Their developments are planned many years ahead — Cambridge’s bond was seven years in the making.
School deals will be rarer, as few have the scale to need bonds. Eton is unusual in having £297m of endowment assets — the main credit support for its £45m 45 year bond. And since the European Investment Bank is increasing its lending to universities and schools (yesterday it said it was lending £102m to schools in the London Borough of Croydon), bond investors may have to look elsewhere.
GlobalCapital’s tip: the charity sector. The Wellcome Trust is well established as a prestigious triple-A issuer. Wellcome is by far the UK’s largest foundation. But there are lots of others with several billion or hundred million pounds of assets — names like the Garfield Weston Foundation, Children’s Investment Fund, Leverhulme Trust, City Bridge Trust and the Wolfson Foundation.
At least one deal from this sector is coming, and, if charities’ trustees want to spice up investment returns with a modest soupçon of leverage — say, up to 15% of assets — now could be a good moment to do it, considering how low borrowing costs are.