Faced with a rapidly deteriorating financial situation in 2020, US colleges and universities issued a record number of bonds this year.

This is a stressful time for higher education. The coronavirus pandemic has exacerbated the existing pressure on tuition fees and additional income as international students have chosen to study outside the United States and funds from sleep and boarding schools have dried up as the schools maintain online courses. At the same time, the need for financial support and the cost of providing protective equipment and testing Covid-19 exploded.

Hoping to make up a potential deficit and take advantage of very low interest rates, universities flooded the market with debt. Because the bond market leaves little room for yield, investors are catching up and in some cases offer a yield of 2 or 3% on bonds with a maturity of 15 to 30 years.

Higher education is becoming attractive because it is under pressure, he said.

Daniel Solender,

which oversees the tax-exempt fixed-income investments of asset management firm Lord Abbett & Co, cites rising university bond yields as a factor calling into question the ability of schools to cope with the pandemic. The company added more than $300 million to its portfolio of such bonds this year.

There are many high-quality institutions with excellent reputations and track records that will find a way to withstand this environment, he said.

During the year to November, colleges and universities issued more than $41.3 billion in taxable and non-taxable fixed-income debt, including refinancing – a record since Barclays began recording the data. The data includes graduates from schools with the highest scores, including Brown University and the University of Michigan, as well as those from schools with lower scores, such as Linfield University in McMinnville, Oregon, and Elverney University in Reading, Pennsylvania, Oregon.

Moody’s Investor Services

OLS 1.15

revised its forecasts for the sector as a whole in March from stable to negative, citing the uncertainty and financial problems caused by the pandemic. In May, S&P Global Ratings downgraded its outlook for the number of schools it assessed and no longer has a positive outlook for the number of schools it assessed. In an effort to relieve some of the pressure, the latest Covid-19 aid law, passed by Congress, allocated more than $20 billion to public and private higher education.

John Augustine,

who heads Barclays’ Higher Education and University Medical Centre Funding Group, says bond issues come from institutions trying to reduce fixed costs. For some, he says, it is more attractive to borrow money at low interest rates than to dive into their capital, which could cost future generations of students dearly.

This summer, the New York Institute of Technology refinanced $17 million of debt to replenish cash reserves, extend maturity to 2030 and reduce annual debt service from $7 million to about $3 million.

The directors expressed concern about the market turbulence they’ve seen and how it could affect our fluidity, said.

Barbara Holahan,

Chief Financial Officer and treasurer of a private university.

She said that releasing funds is a top priority because of declining international student registration and rising costs.

http://server.digimetriq.com/wp-content/uploads/2020/12/Bond-Boom-Comes-to-America Colleges and Universities.5.jpeg

Directors of the University of Wisconsin-Madison have lobbied for changes in state law to enable the issuance of bonds.


Lauren Justice for the Washington Post/Getty Images

The attractiveness of the sector to investors is in part due to the long-term maturity of university and college bonds, he said.

Jim Costello,

who heads the Finance Department at

JP Morgan.

W.M.D. -0.44%.

Corporate bonds rarely have a maturity of more than 10 years, while university bonds generally have a maturity of 30 years.

AAA and AA-rated schools are quite unique assets, Mr. Costello said. It is very difficult for these investors to find very valuable, very long term investments. He said many schools were planning to issue bonds before the pandemic hit this year, but then they increased their loans.

Another incentive to invest is the fact that investors are looking for returns.

After the Federal Reserve cut interest rates to close to zero in March in an attempt to stabilise the economy, investors reset the core index against which they assessed the relative attractiveness of the various asset classes and risks. This contributed to the rapid rise in equity markets this year, as did interest in municipal bonds.

Wofford College in Spartanburg, S.C., selected Synovus Bank for a $17.5 million private placement in September. A small liberal art academy refinanced an existing tax-free debt, part of which was borrowed at low interest rates.

Financial Director Wofford

Chris Gardner

Said the school reduced the yield on the 15-year bond from 3.39% to 2.1%, saving about $100,000 a year.

Everybody’s looking for some kind of harvest. Only 2% is comparable to government bonds, which have a negative yield for half of the countries in the world, according to Mr Gardner.


Do you think university bonds offer an interesting investment opportunity? Why or why not? Take part in the discussion below.

For decades, colleges and universities have sold bonds, mainly to finance the construction of new university buildings, housing and sports facilities and to address deferred maintenance. Like many other municipal bond issues, these issues are generally tax-free. Some schools issue taxable bonds because they have fewer restrictions on how the funds can be used.

Tulane University in New Orleans received $1.5 billion in debt this summer, or $187 million. Among the institutions invested in were the following

BlackRock Inc..,

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Lord Ebbett and the Vanguard Group, Tulane’s Chief Operating Officer, said…

Patrick Norton.

Tulane received new bonds to finance new construction and refinancing of $25 million before the start of the pandemic. The school waited until it confirmed its plans to bring students back to campus for the fall, ensuring a steady flow of money, Norton said.

The total yield was 3.12% for bonds with an average maturity of almost 20 years, compared to 3.31% for 2017 bonds with an average maturity of approximately 12 years.

The University of Wisconsin-Madison wasn’t so lucky.

Contrary to most public universities, Flagship is not in a position to issue its own guilt because of state law. Rather, it participates in the issue and refinancing of tax-exempt general bonds by the State. Campus administration cited the pandemic in discussions with lawmakers this fall to advance the possibility of a band issue, said.

Laurent Heller,

the vice chancellor of finance and administration for the school.

In particular, the University of Wisconsin-Madison is struggling with a shortage of funding for housing and food and for the athletics department, whose 80,000-seat football stadium has been vacant since March. He has fired staff and cut other expenses, but still expects a large budget deficit for the fiscal year ending in June, he said.

It’s in the toolbox of every major university, Heller said. Because we are unable to get into debt on our own, we are under increased pressure to reduce costs immediately.

-Heather Gillers contributed to this article.

Email Juliette Chang at [email protected] and Melissa Korn at [email protected]

Copyright ©2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

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