University of Cambridge £350m Bond Issue Gets Aaa Debt Rating

Moody’s Investors Service has assigned an Aaa debt rating to the University of Cambridge’s inaugural bond issue, announced on 10 October.

The UK university’s bond market debut is a £350m is a senior unsecured obligation and reflects its Aaa issuer rating. The bullet bond issue, via HSBC, Morgan Stanley and RBS, will have a 3.75% coupon and mature in 2052. The issue follows three days of investor meetings in Edinburgh and London, which the banks said showed early indications of interest in what investors regard as a “unique opportunity”.

Moody’s comments that while the university has remained almost debt free to date, the £350m borrowing will result in a modest leverage relative to peers. It is expected that the bond proceeds will be applied towards further investment in research facilities, accommodation and other university assets. The largest investment currently being considered by the university, which recently marked its 800th anniversary, would be the development of a site in the northwest of Cambridge, including the creation of 1,500 housing units for research staff and 100,000 square metres of research space.

With a long-dated issue, the university aims to tap into UK pension and insurance funds, which have longer investment horizons. The only other UK university to fund in the capital markets is De Montfort University, Leicester, rated Aa1 by Moody’s. In July, Barclays led a £100m 5.375% June 2042 issue, following two weeks of investor meetings in the UK, the paper offering a yield of 5.625%.

On 2 October, Moody’s assigned an Aaa issuer rating to the University of Cambridge, reflecting its outstanding market position, significant amount of liquid assets and strong governance structure. It

also took into account the expected increase in the university’s debt-to-revenue ratio to a modest level.

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