Individual Oxford colleges – there are thirty-eight altogether - have issued bonds in the past, but this will be a first for the ancient University as a whole. Timed to perfection for its upcoming bond issue, Moody’s today assigned a “AAA” credit rating, with a stable outlook, to the 900-year old institution.
According to Moody’s, "The Aaa issuer rating assigned to Oxford reflects its extraordinary market position as one of the world's elite universities, ensuring consistent student demand and wide-ranging support from the government, donors, and research funding bodies."
Oxford has seen consistently strong demand from students, both domestic and international, which we expect to continue. Total student numbers have grown steadily over the last five years driven by increases in postgraduate students, reaching 22,602 in 2016. Despite the very strong demand, unlike many of its Russell Group peers, Oxford's strategy is not reliant on growth in student numbers and the University intends to maintain its undergraduate numbers at current levels.
Oxford's exceptional research will continue to support its very strong brand and attract significant funding. Oxford's research funding of GBP730 million in 2016 was the highest amongst UK peers. Research funding is sourced from a variety of entities including funding councils, charities and industry.
Total revenue for the University is well-diversified in part due to income from the Oxford University Press (OUP), which accounted for 40% of revenue in 2016. With its global operations, clear strategy as well as solid track record of stable turnover and strong margins, OUP provides a reliable source of income for the University, which partially mitigates the risk of domestic policy volatility.
Oxford's credit quality benefits from its strong balance sheet which includes a large endowment and displays low leverage. Oxford's endowment reached GBP2.6 billion in 2016, up from GBP1.4 billion five years ago. Debt will increase following a planned bond issuance in Q4 2017. However, because of the low historical debt the post-bond issuance leverage will remain below that of international peers.
With its pristine credit rating, Oxford is about to sell £250 million ($330 million) of ultra-long bonds, making 2017 the biggest year for capital raising by UK educational institutions on record. This will help to plug the gap caused by lower government funding. According to the Financial Times.
Oxford university plans to sell £250m of 100-year bonds as it turns to the capital markets for the first time in its history. The triple A rated university has hired JPMorgan to arrange investor meetings this week in London and Edinburgh.
Last year, there were $1.8bn of bonds issued by UK schools and universities — the highest level on record, beating the previous record of $1.4bn in 2015, Dealogic data show. Over the entire period from 2008 to 2011, by contrast, no bonds were issued.
“They (universities) are increasingly transitioning away from quasi-public sector to behaving and funding themselves in a manner similar to other high quality public companies and organisations,” said Luke Reeve, a partner at EY. In 2010, university tuition fees were trebled to £9,000 a year, but grants from UK government bodies were cut.
When issued, Oxford University’s bonds will have the longest maturity of any UK university and longer than any UK government bond. The FT continues.
The Oxford bond will have the longest maturity of any bond from the UK university sector, and its duration will also be longer than any publicly issued UK government bond. In early 2016, Cardiff university raised £300m in 50-year debt at an interest rate of just 3.1 per cent, the lowest on record at the time. In May this year, Bristol university borrowed £200m in a 40-year private placement from US investor Pricoa Capital Group.
Bristol’s bond issue is being used to a new campus by 2021 which will be directed towards “high tech and digital innovation”. The specific purposes for which the Oxford bond issue will be used are not being disclosed other than “long-term strategic projects and to further the academic mission of the university”.
Oxford University topped The Times World University Ranking for 2016-17, beating Caltech, Stanford, Cambridge and MIT in the top five. Last month, Apple’s CEO, Tim Cook, opened “The Foundry”, Oxford’s first dedicated space for start-ups created by students, alumni and staff. The facility was formerly an ice factory and includes meeting rooms, desk space and free WiFi for early-stage teams.