Stanford University plans to sell $140 million of bonds due in 30 years, joining the University of Pennsylvania and Northwestern University in taking advantage of investor demand for higher-education debt.
Stanford, the fifth-richest U.S. school, may use proceeds to refinance commercial paper and other debt, according to a person familiar with the offering who declined to be identified because the terms aren’t set. Goldman Sachs Group Inc. and Morgan Stanley are managing the offering, the person said. Northwestern, based in Evanston, Illinois, and Tufts University last week together sold $450 million in bonds.
The world’s wealthiest educational institutions, which typically sell tax-free debt in the municipal market, are tapping demand for higher-rated corporate bonds that are outperforming municipal securities this year, according to index data from Barclays Plc. The University of Pennsylvania, the Ivy League school founded by Benjamin Franklin, yesterday sold $300 million of taxable 4.674 percent coupon notes maturing in 100 years to yield 140 basis points above long-term Treasuries.
“University debt has been a hot commodity for some time, especially among the name institutions,” Dave Manges, municipal trading manager at BNY Mellon Capital Markets LLC, said in a telephone interview. Investors want bonds from schools such as Stanford “because of their international stature and name recognition, both in this country and without. I’m sure there’s an international component to the demand that you would not get with the tax-exempt debt.”
Moody’s Investors Service assigned an Aaa grade to Stanford’s taxable bonds, the ratings firm said in a March 28 statement.
U.S. investment grade corporate debt has returned 2.4 percent this year compared with the 1.8 percent return for municipal debt, according to index data from Barclays Plc.
Tufts, based in Somerville, Massachusetts, didn’t have any corporate bonds outstanding before its sale of $250 million in 100-year notes on March 22, while Northwestern sold $5.3 million of taxable debt with a variable interest rate in September 2007, Bloomberg data show.
Stanford, whose endowment is $16.5 billion, trails Harvard, Yale, the University of Texas system, and Princeton among U.S. and Canadian institutions, according to the National Association of College and University Business Officers.