Universities Look to Bond Markets for Additional Funding?
New Issue- De Montfort University prices 110 mln stg 2042 uk.finance.yahoo.com/news/issue-mon… Wonder how common this will become?—
Joss Winn (@josswinn) July 13, 2012
Joss also posted a couple of historical links to set the context: a 2006 piece from the Economist – An education in finance: America’s colleges embrace the capital markets – and a Guardian article from 2010, when it seems Cambridge were looking at a bond issue – Elite universities consider bond issue to raise cash.
I can’t find a statement on the DMU website at the moment (or via a quick search – is there discussion in Senate or University Council papers, for example?), but there is some context elsewhere on the web, such as this rating from May 15th in advance of the issue: Moody’s assigns Aa1 issuer rating to De Montfort University; outlook negative. Here’s a taste of what they said…:
Today’s rating assignment reflects De Montfort University’s (DMU) good market position in Health and Life Sciences and distinction as a national leader in the Creative Arts, the various measures it is taking to maintain and improve this position and its improving financial performance. However, the rating is constrained by DMU’s planned increase in long-term debt and the relatively short track record of its improved governance.
The rating also incorporates Moody’s assessment of a strong regulatory framework for English universities and of a very high likelihood of extraordinary support from the UK government (Aaa, negative) in the unlikely event of DMU experiencing acute liquidity stress.
The planned increase in debt which will bring its debt-to-revenue ratio to a high 70%, will enable DMU to carry out investments in its estates and educational infrastructure which is central to its longer term strategy to enhance its competitive position. This includes the completion of a new leisure centre, the transformation of a main road dividing the campus into a plaza and a joint project with Hewlett Packard which seeks to make DMU a sector leader for IT infrastructure.
The negative outlook mirrors the outlook on the UK’s Aaa sovereign ratings, given the strong linkages between DMU and the UK government in terms of funding, controls and intervention powers.
Although not expected in the medium-term, a significant reduction against planned relative debt levels combined with sustained operating surpluses could positively impact the rating. In addition, the uncertainties of funding changes in the government’s reforms of UK/EU student fees and student number controls, whilst likely manageable, make it unlikely that De Montfort’s rating would improve in the near term.
Deteriorating operating performance due to missteps in cost adjustments and/or an inability to manage in the face of new dynamics in funding and student demand could negatively impact the rating. Whilst unlikely, weakening support for higher education in government policy as well as a reduction in the oversight exercised by HEFCE would hurt the sector’s credit profile, including that of the University.
This reads like a bit of a bind to me from the perspective of HE’s relationship with gov, and how market sentiment might influence gov policy relating to HE? On the one hand, “the strong linkages between DMU and the UK government in terms of funding, controls and intervention powers” would suggest that less government influence on the HE market would be favoured by the market, whilst at the same time “weakening support for higher education in government policy as well as a reduction in the oversight exercised by HEFCE would hurt the sector’s credit profile, including that of the University”. But then, I’m not a financial journalist…
[UPDATE: I don't know how easy it is to find out who buys into bonds to a significant extent, but it'll be interesting to see who buys into this one? Ethical funds maybe, or public sector pension funds? At a global scale (US universities are into the bond thing for example) I wonder what a map of major holders of university bonds might look like?]
Just in passing, there were a couple of other university funding related stories this week. For example, a bit of philanthropy in the form of a Venture capitalist giv[ing] £75m for Oxford’s poorest students that “will fund £11,000 scholarships for the poorest 10% of Oxford students” (further Guardian comment here) contrasts with a report in The Independent that describes how “civil servants have warned” that 150,000 will lose right to an adult education “because of plans to make them pay the full cost of their courses”. The threat arises from a proposed changed to funding support for mature students:
At present, further education students over the age of 24 only have to meet half the cost, while under-19s are not charged. But from next August, the Government intends to compel all over-24s taking A-levels or access courses to pay the full amount, and is introducing loans up to the value of £3,700 to cover the cost. Only those seeking basic qualifications in literacy and numeracy will receive grants which they do not have to pay back.
(This is representative of a sustained reduction in adult higher education from a funding perspective. For example, who remembers this from 2009? Lifelong crisis spreads as ELQ decision forces further closures, which led to universities “cutting back on lifelong learning courses” as a result of “the introduction of the Government’s rule denying students funding to study for equivalent or lower-level qualifications (ELQs) to those they already hold.”)
Martin Weller has also posted recent related thoughts here around the student loan scheme and “Student Number Control”: How to dismantle a sector.
PS for any data junkies out there, I started thinking about how money flows into HEIs in a couple of other posts: eg University Funding – A Wider View, and as an aside in Sketching Substantial Council Spending Flows to Serco Using OpenlyLocal Aggregated Spending Data.
PPS via @amcgettigan (Critical Education blog), a Research Fortnight series of articles on finance in HE (The Third Revolution) of which Part 2: “Demand would be enormous” [PDF] (a history of bond issues in English HE) and Part 3: Borrowing Greatness [PDF] (bond finance driving up Californian university fees) cover bond issues.