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Cambridge University Considers Debut Bond With Top Rating

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Oct. 2 (Bloomberg) -- Cambridge University said it may sell bonds for the first time in its 800-year history after winning a top credit rating from Moody’s Investors Service.

The university has been authorized to borrow as much as 350 million pounds ($566 million) to invest in research facilities and accommodation, Moody’s said in a report, citing the school’s “extraordinarily strong market position,” stable revenues and ability to fund capital spending. Cambridge said today it will embark on a series of meetings with bond investors later this month, with a possible fundraising to follow.

“Right now, we’re exploring our options and we have several open to us,” Andrew Reid, the university’s director of finance, said in an interview. “There’s no urgency.”

While top U.S. universities including Stanford and Columbia have access to bonds markets to supplement income from endowments, only one British college, De Montfort University, issued debt this year, according to data compiled by Bloomberg. U.K. schools typically have less cash than their American peers and rely on revenue from publishing, examinations, research grants, fees and government grants.

Investment managers would be attracted to a Cambridge bond sale, said Christopher Bullock, an analyst at Henderson Global Investors Ltd. in London, which oversees about $23 billion.

‘Tick Boxes’

“If it has the right guarantee and security then it will tick boxes,” Bullock said. “There’s significant investor demand for high-rated corporate securities that offer a premium over sovereign and agency paper.”

The U.K. is rated Aaa with a negative outlook, a signal Moody’s is inclined to cut. The university has a stable outlook.

Cambridge has its 1.6 billion-pound Cambridge University Endowment Fund, which it can draw for a long-term rate of about 4.5 percent a year, according to Reid. The fund is run by Nick Cavalla, who until 2006 was the chief investment officer at hedge-fund manager Man Group Plc.

“The U.S. universities’ funding structure is different,” Reid said. “We are not, and we don’t want to be, as dependent on the endowment as they are.”

In Canada and the U.S., establishments from University of Toronto and Lakehead University to Harvard and Yale have about $18.3 billion of bonds outstanding, of which about $4.1 billion was issued this year, the data show.

European Issuers

In Europe, Spain’s Universitat de Valencia and Universidad de Alicante have bonds outstanding, as do institutions such as University of Canterbury in New Zealand and South Africa’s West Cape University. In the U.K., Greenwich University is the only other issuer, data compiled by Bloomberg show.

“This sector is considered secure as it doesn’t have the perceived problems of poor capitalization or declining market share that many corporations may face,” said David Manges, municipal trading manager at BNY Mellon Capital Markets LLC in Pittsburgh, Pennsylvania. “Cambridge is going to be internationally known and investors will be underweight in this sector, so it’s something any portfolio manager should be glad to put on the shelf.”

Cambridge University, which educated Isaac Newton and Charles Darwin, mandated HSBC Holdings Plc, Morgan Stanley and Royal Bank of Scotland Group Plc to arrange the investor meetings starting Oct. 5, according to a person familiar with the matter, who asked not to be named.

Leicester, England-based De Montfort University issued 110 million pounds of senior, unsecured 5.375 percent bonds due 2042 in July that were priced with a zero yield premium to equivalent-maturity gilts, data compiled by Bloomberg show. The school is rated Aa1 by Moody’s, one level below Aaa.

The extra yield that investors demand to hold De Montfort’s notes instead of benchmark government securities narrowed to a record 115 basis points, from as much as 275 in July, Bloomberg generic prices show. A basis point is 0.01 percentage point.

To contact the reporters on this story: John Glover in London at johnglover@bloomberg.net; Katie Linsell in London at klinsell@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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