Bond Issues and the Cash-Strapped Universities. (May 21, 2010)

Back in 2004 The Australian National University (ANU) announced it was looking into issuing $100 million worth of CPI indexed annuity bonds. It undertook a "road show" to judge demand for such an issue in order to meet potential investors in Sydney, Melbourne and Brisbane starting September 22, 2004. Had the bond issue proceeded the $100 million would have been used to upgrade the university's infrastructure.

So far as we know that initiative never eventuated. However, in October 2009 New Zealand's Canterbury University announced it would  float a NZ$50m issue of 10-year, unsubordinated, unsecured, fixed rate bonds (7.25%) with philanthropic options. It was fully subscribed by December 1, 2009.

Then in January this year the University of Cambridge announced its plan to raise up to £400 million from its first bond issue, following a trend set by Stanford University and several US Ivy League institutions to turn to the money markets for funding. And as of today the Guardian reports that the UK's elite universities, the 20 member Russell Group, are considering proposals that would allow them to raise potentially hundreds of millions of pounds on the financial markets by issuing bonds.

The suggestion is that a number of the universities would combine to float a large bond issue, capable of attracting "major investors" with the bonds even being marketed to alumni, who might be encouraged to buy them at lower than market rates.

In its submission to a cross-party review on university funding and tuition fees led by Lord Browne, the former BP chief executive the Russell Group wrote: "Such a proposal would raise up-front cash for universities without placing additional pressure on government finances." The review is scheduled to report in the Northern autumn.