College considers selling bonds for funding
Published 05/01/2010 | 05:00
The 800-year-old University of Cambridge is considering selling bonds for the first time to take advantage of a rally in credit markets.
As an alternative to straightforward borrowing, sellers of bonds agree to pay a fixed rate of interest and to buy back the bonds at a particular date -- usually many years away.
"A university such as Cambridge could offer investors the same sort of long-term stable cash flows you see with bonds from utilities (such as electricity or water companies)," said Simon Ballard, head of European credit strategy at RBC Capital Markets, London.
Universities and colleges in Britain and Ireland have no publicly issued bonds outstanding, while in the US and some other European countries, such as Spain, colleges are more frequent issuers, Bloomberg data shows.
European higher education establishments, including the University of Alicante and University of Valencia, have bonds with a face value of €323m in the market.
Cambridge's total financial endowment was estimated at £4.1bn (€4.6bn) in 2006.
Unprecedented demand drove the extra interest on corporate bonds over government ones to the lowest since June 2008 -- 1.68 percentage points, compared with 4.63 percentage points last March. (Bloomberg)