Universities, waiting to see how hard the coronavirus pandemic will hit overseas enrolments and government grants, have gone on a borrowing spree in the bond markets this year that outpaces a rise in companies' bond sales.
AMSTERDAM - Universities, waiting to see how hard the coronavirus pandemic will hit overseas enrolments and government grants, have gone on a borrowing spree in the bond markets this year that outpaces a rise in companies’ bond sales.
Yet that has not stopped investors from lending to universities at record-low rates. And the institutions have rushed to capitalise on the availability of cheap funding. Among those to issue was the AAA-rated University of Virginia, which raised $600 million in July to fund projects such as new dormitories. It paid a 2.256% yield, the lowest ever for a 30-year “taxable” university issue.
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.The coronavirus crisis may widen the gap between top-tier universities and lesser-known ones. This year’s borrowers mostly comprise top-rated names such as Virginia, Harvard and Stanford.
“For fiscal 2021, universities face unprecedented enrollment uncertainty, risks to multiple revenue streams, and potential material erosion in their balance sheets.” He said 30-40 universities with lower credit ratings were waiting for clarity on admissions and tuition fees before issuing debt.
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