Oxford college reaches out to debt market

University College, which was founded in the 13th century and stakes a claim to being the oldest Oxford college, plans to use the long-term bond for general corporate purposes, including boosting its investments. The college has a £130m investment fund run "with a tilt to yield", according to Mr Marshall.

In the last few years, other UK universities, including Cambridge, have tapped bond markets for funding, with 10 UK university bonds being publicly issued since 2012, according to Dealogic.

Although still small, university issuance represents a different proposition for investors - such as pension funds and insurance companies - who want credit security but need the kind of returns that low or often negative-yielding government debt is failing to provide, according to Julie Edinburgh, head of private placements at Credit Suisse, which acted as lead manager on the deal.

"There's very little else an investor can buy with such a high credit quality," she said. "In the case of University College, investors would compare this to gilts."

"The continuous trend of declining rates has driven many issuers to more seriously consider issuing long-term debt to lock in historically low rates," she added.

The environment for university funding has changed dramatically over recent years, with tuition fees trebling in 2012 and government funding likely to diminish in the next parliament as new cuts are imposed.

Hugo Foxwood, a director at Standard & Poor's, the rating agency, suggests that universities are increasingly eager to use capital markets to fund infrastructure investments, such as accommodation blocks, especially as they compete for lucrative overseas students.

"We do expect a demand for universities to be increasingly investing in infrastructure, partly because capital they used to get from the government has declined, but also they are competing more," he said.

He added that university funding may experience a trajectory comparable to housing associations, which aggressively pushed into capital markets in 2012 as previous forms of funding dried up.

Additional reporting by Helen Warrell

The ultra-low yields gripping global capital markets made their mark on an ancient seat of learning this week, as an Oxford college became the first UK university institution to issue a bond in 2015.

The £40m bond, which was launched this week by University College, Oxford and matures in 50 years, carries a coupon of 3.1 per cent.

The debt, which was pre-placed on the London Stock Exchange, is lower yielding than any bond issued by a UK university on record, according to Dealogic.

University College's bond is a sign that a wider range of issuers - from the boardrooms of multinational corporations to the spires of august educational institutes - are increasingly aware of the opportunity to lock in long-term credit at historically low rates.

"We were struck by the level of interest rates and it seemed to be an opportunity to bring in external capital for the long-term on good terms," said Frank Marshall, estates bursar at the Oxford college.

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