Tufts University and Northwestern University are taking advantage of investor demand for higher-education debt after the University of California sold the largest college century bonds last month.
Tufts, named after Boston businessman Charles Tufts and chartered in 1852, may sell $250 million taxable 100-year bonds as soon as today, said a person with knowledge of the offering. Northwestern, which includes Orrington Lunt, a founder of the Chicago Board of Trade, among its forefathers, may issue $150 million of 35-year notes on March 21, said the person, who declined to be identified because terms aren’t set.
The world’s wealthiest educational institutions, which typically sell tax-free bonds in the municipal market, have tapped demand for higher-rated taxable corporate debt in the past year. Massachusetts Institute of Technology and California Institute of Technology are among five colleges that sold $2.7 billion of 100-year debt in the past nine months, the biggest surge in 26 years, according to data compiled by Bloomberg.
The universe of “high-quality double- and triple-A names is shrinking,” making the debt from the institutions more appealing, Timothy Cox, executive director of debt capital markets at Mizuho Securities USA Inc. in New York, said in a telephone interview. The universities may also be trying to “diversify” their investor base, he said.
Tufts’ bonds may be rated Aa2 by Moody’s Investors Service and AA- by Standard & Poor’s, according to the person with knowledge of the offering. Northwestern’s may be graded Aaa by Moody’s and AAA by S&P. There are 62 issues in Bank of America Merrill Lynch’s AAA index, compared with 120 in 2007. In the bank’s AA graded index, the number of issues has fallen to 403 from 516 five years ago.
Tufts, based in Somerville, Massachusetts, doesn’t have any corporate bonds outstanding, while Evanston, Illinois-based Northwestern sold $5.3 million of taxable debt with a variable interest rate in September 2007, Bloomberg data show.
The University of California sold $860 million of 4.8 percent taxable debt that pays 4.86 percent yearly last month, Bloomberg data show.
MIT’s $750 million issue of 5.6 percent debentures last May was the first of 100-year bonds by a college since $100 million by Boston University in 1997. The University of Southern California followed last year with $300 million at 5.25 percent, Ohio State University sold $500 million at 4.8 percent and the California Institute of Technology issued $350 million at 4.7 percent, according to data compiled by Bloomberg.
Yields on investment-grade corporate debt fell to a record 3.40 percent on March 2 before rising to 3.55 percent on March 16, according to Bank of America Merrill Lynch index data. The rate for 30-year tax-exempt municipal debt with an AAA grade is 3.49 percent, Bloomberg data show.