All the bonds. All on demand

The news that DMU and Cambridge have both entered the bond market is perhaps a reflection of three things: first, the reduction in availability of other, more traditional routes of funding; second, the confidence that the market at large retains in the UK HE sector; and third, the growing appetite within the sector for diversifying funding sources.

Further details about the types of bonds available can be found in this article, written by my learned colleagues, Nick Sanderson, John Rice & Russell Johnston.  Some of the things that immediately strike me are:

·         Many universities have identified a modern attractive campus as a key part of their strategy for enhancing the student experience and thus improving recruitment and retention. Some are much further down the line than others in achieving this. Those that have a longer way to go express concern that funding these developments is much less straightforward than it used to be. It seems however that institutional investors are desperately seeking long-term bonds to match long-term liabilities, making university bonds in the current climate cheaper to issue and more attractive than to date. In other words, we seem to have a fortuitous coincidence of a need for funding and a group of people willing to provide it.

·         Another issue that has cropped up time and time again with the institutions I talk to is how restrictive financial covenants in conventional bank borrowing can be, or rather how restrictively some banks are choosing to interpret them. Having lent money some years ago at what is now an unattractively low rate of interest, some banks are looking for a route to renegotiate by keeping an eagle eye on breaches of covenant. Bonds carry less severe and intrusive covenants, which may be more palatable to institutions at a time when there is probably a greater than ever need for flexibility and freedom given the volatile policy and funding environment.

·         Shorter-term retail bonds seem on the face of it to have a place in the growing portfolio of fundraising activities which institutions are developing to engage alumni. Those who are unwilling or unable to donate outright £1000 might nonetheless be attracted to the possibility of investing the same sum in the success of their alma mater. It certainly seems to be something worth thinking about.

Smita Jamdar
Partner and Head of Education
For and on behalf of SGH Martineau LLP
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