The University of Oxford has become the latest higher education institution in Britain to raise money for investment through the international capital markets, by issuing a bond raising at least £250m that it plans to pay back in 100 years time.
Oxford has appointed investment bankers JP Morgan to sell its bond, which is expected to be attractive for pension funds and similar institutions looking for a stable, long-term investment.
The move highlights the recent attraction for using bonds as a way of raising funds by universities in the UK. Cambridge offered a £350m bond issue in 2012, which it used to help fund a huge programme of investment, including the construction of an enclave two miles north-west of the city.
In 2016 there were more than £1bn of bonds issued by UK educational establishments, as they sought to take advantage of low interest rates and high demand from investors.
Individual Oxford colleges have issued bonds, but this would be the first time in Oxford’s modern history that the university as a whole has raised finance this way.
The 100-year maturity is much longer than its peers but the credit rating agency Moody’s on Tuesday gave Oxford its highest Aaa rating with a “stable” outlook.
Moody’s said the high rating reflected Oxford’s “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.”
But it added: “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.”
Moody’s noted that Oxford’s annual research income was higher than its peers, and that total revenue was helped by the performance of the Oxford University Press (OUP), which accounted for 40% of the university’s income in 2016. the university also benefited from an endowment worth more than £2bn.
But the rating agency also said that Oxford had lower profitability and higher overheads than other UK universities, and noted that improvements would be “challenging in a climate of higher inflation and a tuition fee freeze from 2019”.
Moody’s also listed potential threats to Oxford’s stability, including vulnerability over talented staff.
“Downward pressure would be exerted on the ratings by a deterioration in Oxford’s strong market position, triggered by external pressures or weak strategic planning, resulting in lower student demand or an inability to attract research funding or high-calibre staff.
“Additionally, a significant weakening of operating performance including that of OUP could exert downward pressure on the rating.”