2010-01-04 14:02:52.192 GMT

(Adds analyst comment in eighth paragraph.)

By Caroline Hyde and Sonja Cheung
Jan. 4 (Bloomberg) — The University of Cambridge, the
second-oldest in the U.K., is considering selling bonds for the
first time to take advantage of a rally in credit markets.
The 800 year-old school should “proceed as soon as
possible with a long-dated issuance in the fixed-interest
markets while conditions remain historically favorable,”
according to a recommendation by the Board of Scrutiny, the
university’s watchdog. Cambridge hasn’t sold bonds in the public
market before, according to data compiled by Bloomberg.
“A university such as Cambridge could offer the same sort
of long-term stable cash flows you tend to see with a utility
issuer,” said Simon Ballard, head of European credit strategy
at RBC Capital Markets in London. “It would likely be a
relatively attractive defensive name for buy-and-hold
investors.”
Universities and colleges in the U.K. have no publicly
issued bonds outstanding, while in the U.S. and some other
European countries, such as Spain, schools are more frequent
issuers, Bloomberg data show. European higher education
establishments including the University of Alicante and
University of Valencia have bonds with a face value of 323
million euros in the market, according to the data.
Cambridge spokesman Nick Saffell was unable to comment.
Unprecedented demand for riskier assets pushed European
corporate bond sales to a record 1 trillion euros in 2009 and
drove the extra yield, or spread, investors demand to hold the
notes rather than the safest government debt to the least since
June 2008. The spread tightened to 168 basis points, from as
much as 463 last March, according to Merrill Lynch & Co. index
data. A basis point is 0.01 percentage point.

800th Anniversary

The University of Cambridge’s total financial endowment was
estimated at 4.1 billion pounds ($6.6 billion) as of 2006,
according to Wikipedia. The school, which counts economist John
Maynard Keynes and physicist Stephen Hawking as past students,
has got 800 million pounds of a planned 1 billion-pound
fundraising under its 800th Anniversary program, according to
its Web site.
“Cambridge receives the bulk of its funding from the
government, and if it was to be rated, then this strength would
be duly noted,” said Ciaran O’Hagan, a fixed-income strategist
at Societe Generale SA in Paris.
The Wall Street Journal reported the possible sale earlier.
Lancaster University in the northwest of England issued 35
million pounds of 9.75 percent debentures in 1995, according to
Bloomberg data.