Mills & Reeve advises 18 Cambridge colleges on £150 million debt private placement

We have advised on our third capital markets fundraising in the higher education sector over the last 14 months, with the latest deal designed mainly to fund capital investment programmes at 18 Cambridge colleges.

The successful placement follows the launch of a £350 million public bond issue by the University of Cambridge in October 2012 and a £300 million public bond issue by the University of Manchester in July this year. It is the first time that an aggregated structure has been used by a higher education institution, and offers a potential route for universities with smaller debt requirements to access the debt capital markets. 

The colleges will use the proceeds mainly to help finance on-going capital investment programmes in college buildings. The 18 colleges, in alphabetical order, are:

  • Christ’s College
  • Churchill College
  • Corpus Christi College
  • Darwin College
  • Downing College
  • Girton College
  • Gonville and Caius College
  • Homerton College
  • Hughes Hall
  • King’s College
  • Lucy Cavendish College
  • Newnham College
  • Pembroke College
  • Queens’ College
  • Robinson College
  • Sidney Sussex College
  • St Catharine’s College
  • Trinity Hall

Sarah Seed, banking partner at Mills & Reeve who specialises in alternative sources of financing for not-for-profit institutions, said: “The reality is that the higher education sector in the UK, and across the world, is experiencing significant change. This requires new solutions, especially in the area of finance, and we are now combining a greater number of legal disciplines to meet our clients' needs. 

“Many universities and institutions within the Higher Education Sector are increasingly looking at alternative forms of financing and we were delighted to have been able to assist this group of Cambridge colleges on aggregating their debt requirements and on successfully raising a substantial amount of capital to help them achieve their long term goals. The appeal of the aggregating funding vehicle to investors offers exciting possibilities to the many universities looking for alternative sources of finance but with debt requirements too small to go it alone.” 

The borrowings take the form of debt private placements, issued by two special-purpose companies, Cambridge Colleges Funding plc and Cambridge Colleges Funding II plc. These two companies have issued three private placements to institutional investors, and will on-lend the proceeds to the 18 Colleges on a matched or ‘pass-through’ basis. 

Together, they total approximately £150 million, and have a weighted average interest rate of 4.42% and a weighted average maturity of nearly 33 years. All the placements were priced at a credit spread of 0.85% over the relevant reference gilt yield at the time of pricing. The individual amount borrowed by each college ranges from approximately £3 million to approximately £18 million. The on-loans are legally separate and several, and no college is guaranteeing the obligations of any other. 

The Mills & Reeve team was led by banking partner Sarah Seed with additional support from partner Claire Clarke and associate Matthew Howling. Mills & Reeve acts for over 120 universities, colleges and education bodies. It is developing a market-leading reputation in the area of alternative financing for the not-for-profit sector and is currently advising a number of higher education institutions and charities on the rapidly increasing range of financial solutions open to them. 

Rothschild is providing independent debt advice to the Colleges and RBS and Barclays acted as arrangers. Mills & Reeve advised the issuing vehicles. Bingham McCutcheon acted as legal adviser to the institutional investors.

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