Bloomberg News

Cambridge University Sells First Bonds as Investor Demand Surges

October 10, 2012

Cambridge University Sells First Bond as Company Debt Risk Rises

Cambridge university has been authorized to borrow for investment in research facilities and accommodation, Moody’s Investors Service said in a report that cited the school’s “extraordinarily strong market position” and stable revenues. Photographer: Dan Kitwood/Getty Images

Cambridge University, the 800-year- old alma mater of Isaac Newton and Stephen Hawking, sold its first bonds, tapping investor demand that let Portugal Telecom SGPS SA (PTC) issue its first benchmark notes since 2011.

“I like its rarity value, it will become a museum piece,” Louis Gargour, chief investment officer at London-based hedge fund LNG Capital LLP, said of the university’s offering. “There will be more demand than supply for this deal.”

The school’s 350 million-pound ($560 million) issue of 40- year top-rated senior securities was priced to yield 60 basis points more than U.K. government debt, or about 3.86 percent, according to data compiled by Bloomberg. The spread compares with 109 basis points on 30-year notes of De Montfort University, the only other U.K. college to sell bonds this year.

Demand for debt allowed three Portuguese companies to issue bonds in the past month, even as euro-area leaders struggle to contain Europe’s debt crisis. Investors are accepting more risk for lower returns in an environment of record-low interest rates, Suki Mann, a strategist at Societe Generale SA in London, wrote in a note today.

The Markit iTraxx Crossover Index of credit-default swaps linked to the debt of 50 companies with mostly high-yield credit ratings rose four basis points to 554. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose one basis point to 133.

The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers was little changed at 185 and the subordinated index held at 324. A basis point on a contract protecting 10 million euros ($12.9 million) of debt for five years is equivalent to 1,000 euros a year.

Low Rates

Cambridge University’s bond allows it to enhance its research, teaching and accommodation facilities so it can remain “among the forefront of global universities,” Leszek Borysiewicz, vice chancellor, said in a phone interview. Cambridge is ranked second in the QS World University Rankings behind Massachusetts Institute of Technology.

The school received investor orders for the bonds that were four times more than the university raised, according to Andrew Reid, the university’s director of finance.

“We’ve been very encouraged by the investor interest in what Cambridge is doing,” Reid said in an interview. “It seemed a sensible time for us to lock in interest rates at historically low levels.”

HSBC Holdings Plc, Morgan Stanley and Royal Bank of Scotland Group Plc managed the deal for the university.

Funding Precedent

“Investors predominantly came from the U.K. but also from Europe and Asia,” said Russell Maybury, head of corporate debt capital markets for the U.K. and Ireland at RBS. “It’s an excellent precedent. Other universities in the U.K. will be looking at this now and may see bonds as an attractive form of funding.”

Portugal Telecom sold 750 million euros of bonds due April 2018 at a yield of 6 percent, data compiled by Bloomberg show. It’s the third Portuguese company in a month to sell debt after Energias de Portugal SA and Brisa-Auto Estradas de Portugal SA.

EDP broke a 20-month deadlock as the first Portuguese company to sell benchmark bonds since January 2011. Credit- default swaps insuring Portugal debt fell 371 basis points since July to 477. The contracts rose 15 basis points today.

Peugeot Plunge

Securities of Banque PSA Finance SA, the financing unit of PSA Peugeot Citroen, dropped after the carmaker was downgraded one level to Ba3 by Moody’s, which cited slumping car sales in Europe. The lender’s notes made up six of today’s biggest price fallers in Bank of America Merrill Lynch’s EMU Non-Financial Corporates index.

Fiat SpA’s debt rating was also cut one level to Ba3, pushing the carmaker’s 7.75 percent bonds due 2016 down 1.2 cents to 102.1 cents on the euro, the biggest one-day decline since July 23, data compiled by Bloomberg show.

Norddeutsche Landesbank, a German state-owned lender that survived the financial crisis without aid, is selling Europe’s first dollar covered bond in three months to take advantage of investor appetite for safety.

NordLB offered $1 billion of three-year, top-rated notes backed by public-sector loans at a yield spread of 50 to 52 basis points more than the benchmark swap rate, said a banker on the deal, who asked not to be named because the deal is private. It’s the first covered bond from a European bank since Muenchener Hypotekenbank sold $500 million of 1.125 percent three-year notes on July 5, according to UniCredit SpA data.

To contact the reporter on this story: 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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