Daily Management Review

Pandemic Effect: Universities Across The World Flock To The Bond Market For Cheap Funds


Pandemic Effect: Universities Across The World Flock To The Bond Market For Cheap Funds
Many of the renowned universities in the United States, United Kingdom and elsewhere are rushing to the bond markets this year to raise money at a pace that is faster than the sale of bond for companies even as they await to see the impact or the novel coronavirus pandemic on overseas enrollments and government grants.
But with students sent home and classes moving to online platforms, the pandemic has threatened to change the way higher education is imparted all across the world. But the pandemic is also expected to hit the finances of universities in terms of tuition fees, particularly from overseas admissions while there can also be a drop in government funding because of the economic fall out of the pandemic.
But despite this, lenders have been giving the universities money at record low levels of interest. And this availability of cheap funding is being lapped up by the institutions.
While being just a miniscule part of the global bond market, the sale of bonds issued by universities globally are already more than double of the total sale for last year, at $11.4 billion in the year to date, according to data from Dealogic.
At the same time, Dealogic data shows that the sale of bonds by companies globally is only about 75 per cent of the volumes reached in 2019.
Fitch analyst Emily Wadwhani, who specialises in higher education finance said: "We're seeing a lot of what we call pull-forward issuance," as universities brace for another lockdown in autumn.
The universities that were successful in the bond market included the AAA-rated University of Virginia which has already raised a total of $600 million in July for funding of its projects such as construction of new dormitories. It paid a 2.256% yield, the lowest ever for a 30-year "taxable" university issue.
Compared to municipal bonds, another source of funding for US universities, a broader investor pool gets attracted to taxable corporate debt.
"The market was incredibly advantageous. We have both (current and future) capital needs, but we also thought that given the opportunity to go into the market, we could advance fund," J.J. Davis, chief operating officer at the University of Virginia, said.
"At these rates, why wouldn't you?"
According to Dealogic data, in the year-to-date, US universities accounted for 24 deals while bonds were also sold by universities and institutions from Canada, Brazil, Singapore and Australia.
According to Dealogic the total market value of publicly disclosed university bonds is about more than $50 billion. Out of this, $36.3 billion worth of bonds are issued by universities of the US as they tend to get less government funding compared to universities in Europe.
Existing university issues, especially from top-tier names such as Oxford and MIT, have shared in this year's broader bond market rally. Yields on the S&P Municipal Bond Higher Education Index have fallen to 2.7%, near record lows.