Alumni mini-bonds Higher education Financing Mini-bonds are typically marketed to customers, With funds raised from the issue of UK retail bonds clients or some other cohort that is identifiable to the exceeding £2 billion in the past two years, what bond issuer. A recent example of a mini-bond issue was once an alternative source of funding has the was the £57 million issue by John Lewis raised from hallmarks of becoming a mainstream financing tool. its employees and customers. For an educational As traditional bank debt becomes harder to secure, institution, a target cohort could be its alumni. Issue and with retail investors seeking alternatives to low sizes for mini-bonds are typically smaller than those yielding bank deposits, listed and unlisted retail bonds for listed retail bond issues and limited by the size have become a credible source of corporate debt. and receptivity of the target cohort. A pre-requisite Whilst institutional bond markets have serviced for a mini-bond is that the institution issuing the the corporate bond market for many years, direct bonds has a strong brand and a loyal following. access to the retail market has more recently developed through two main channels: Efficiency Mini-bonds are unlisted and because they are • the issue of listed bonds on ORB (the London non-transferable, the bond issuer is not required to Stock Exchange’s retail bond market), and publish an FSA approved Prospectus and they are not subject to a formal on-going disclosure regime • the issue of non-transferable and unlisted meaning their issue is significantly more cost and mini-bonds. time efficient than listed bonds or listed equity.

Flexibility Engagement Both listed and unlisted retail bonds have several For a higher education institution, a mini-bond key advantages over term debt and the wholesale offers a new way to engage with alumni. Successful corporate bond market, including greater flexibility mini-bond issuances to date have offered investors on maturities and the ability to raise smaller tranches attractive investment terms and compare favourably of debt. They can allow for greater diversification of with alternative investment products available to funding sources and enable debt maturity profiles to the public. Whilst the cost of a mini-bond issue is be flattened, avoiding large maturity peaks. broadly comparable with senior secured Unlisted mini-bonds are however even more debt from high street lenders, a mini- flexible than listed bonds and are an emerging form bond has the benefit of being more of debt funding that enables an issuer to retain flexible when the ‘covenant lite’ control over the fund raising process. and subordinated nature of the instrument is considered. Added value In addition to alumni supporting a higher education institution’s funding needs by buying a mini-bond, the charitable benefit can be enhanced and structured in a way that allows alumni to elect to buy bonds at a market interest rate, at lower than market interest rate or at a zero interest rate.

Pros Cons • An increasingly popular financial instrument • Not transferable, so cannot be bought or amongst retail investors sold during the life of the bond but can be redeemed on death • Greater flexibility on maturities and terms and conditions compared to traditional term debt • Cannot be held within ISAs and wholesale corporate bonds • Not covered under FSCS • Provide the ability to raise smaller, multiple • Requires a UK ‘PLC’ corporate entity to be tranches and at smaller denominations used as the issuer of the bonds • A loyal customer or alumni base should • Market custom requires that the bonds increase the likelihood of a successful debt are guaranteed by a group company of issue substance • Can be held within SIPPs • No requirement to publish an FSA approved prospectus and not subject to credit ratings or an on-going disclosure regime • Relatively cost and time effective issue process • Can be issued in a ‘covenant lite’ form and subordinated to all other debt lines How Grant Thornton can help

Our funding solutions team are experts in assessing the financing needs of your business. We can advise on the suitability of mini-bonds as a financing option, structure the bond and project manage the execution of the bond issue.

For more information on how we can advise you on your strategic business options, please contact:

Philip Secrett David Barnes Partner, Advisory Partner, Head of Higher Education T +44 (0)20 7728 2578 T +44 (0)20 7728 2026 E [email protected] E [email protected]

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