EDiTorial roUndtAble HigHer-education funding transformation sea change in the way australian universities are approaching funding their research, education and accommodation facilities has caused a A mini-boom in higher-education bond issuance since april 2014 (see table on p62). In march 2016, the five names from the sector that have issued this decade talked exclusively to kanganews about how their market engagement developed and how it might progress in the future. ParTiCiPanTS n daniel Baird director, Corporate Finance UnIVerSItY oF meLBOUrne n John gorman Chief Financial officer maCQUarIe UnIVerSItY n david Pitt Chief Financial officer monaSH UnIVerSItY n alastair Sinton Chief Financial officer aUSTRALIan NATIonaL UnIVerSItY n allan tait Chief Financial officer UnIVerSItY oF meLBOUrne n Laurence Zanella treasurer UnIVerSItY oF SYdneY moDERATorS n Helen craig deputy editor kanGaneWS n Lucy Symonds trainee Staff Writer kanGaneWS bond-market drIVerS classic corporate-funding arrangement, with a global limit and the ability to pick and choose products within this limit. Craig Universities have traditionally sought In 2010 we secured A$450 million (US$344.8 million) in debt financing from their banks or via their global credit exposure in the form of bilateral bank facilities, state governments. Was the driver for using with the option of taking part – or all – of this out in a bond debt capital markets a natural evolution of issue. In the end we issued A$250 million in bonds and kept the existing funding sources or a more active remainder in bank funding to support flexibility going forward. decision by the universities? n TaiT I wouldn’t necessarily say our capital-markets driver n Gorman It’s really a variety of reasons, although it’s worth was a bold funding policy, but there were a number of pointing out that although we can lend to New South Wales important considerations. The first is that the amount of Treasury Corporation we’re actually precluded from borrowing capital coming from governments in the last few years from the state. Until 2010, most universities had traditionally has declined significantly. For example, following the borrowed from their banks, and we were no different. financial crisis the Education Innovation Fund provided Historically, universities tended to seek to fill their financing government funding for quite a lot of projects. Many needs in a non-corporate way. But, with a background in universities, including University of Melbourne (Melbourne corporate treasury, I was aware that the range of funding available University), received infrastructure-related funding from the to Macquarie University spanned more than just the bank market. Commonwealth government. This source has dried up more We could theoretically access funding in the domestic MTN, US recently. This is not to say the universities aren’t awarded 144A or US private placement (USPP) markets. funding in other areas – but not for infrastructure. A more recent development has been the fact that There has also been a paradigm shift in the universities’ universities’ credit ratings have surpassed even those of the operating environments, which means there will need to be banks. This implies that universities should theoretically be able a similar shift in the way universities manage their finances to achieve cheaper funding outside the bank market. When I over the next 5-10 years. Universities are now large, global joined Macquarie University, I saw the opportunity to arrange a businesses. With a revenue base in excess of A$2 billion, if 61 EDiTorial roUndtAble AustrAliAn university Debt CApitAl MArkets issuAnCe PriCinG monTh IssuEr TyPE VolumE maTuriTy CouPon marGin lEaD raTinG raTinG (m) yEar (%) manaGEr(S) AgenCy August 2010 Macquarie AMTN A$250 2020 6.75 170bp/s-q ANZ, Aa2 Moody’s University swap CommBank April 2014 University of AMTN A$200 2021 4.75 88bp/s-q swap ANZ, NAB Aa1 Moody’s Sydney June 2014 University of AMTN A$250 2021 4.25 80bp/s-q swap ANZ, NAB AA+ S&P Melbourne November 2014 Monash University USPP US$150 2039 ND 120bp/UST NAB NAIC-1 NAIC only August 2015 University of AMTN A$200 2025 3.75 95bp/s-q swap ANZ, NAB Aa1 Moody’s Sydney November 2015 University of USPP US$275 2036 & ND ND JPM, NAB AA+ S&P Melbourne 2046 November 2015 Australian National AMTN A$200 2025 3.98 105bp/s-q ANZ, NAB AA+ S&P University swap soUrce: kAngAneWs April 6 2016 Melbourne University was listed it would be in the top 200 maturities out to 25 years, and this enabled us to better match businesses on the Australian Securities Exchange. liabilities with assets. This tenor is not currently available in the Additionally, we note a more professional approach in the local bank market. financial management of the university sector. This is reflected n ZanElla For University of Sydney (Sydney University) it in the treasury teams, which now include people who have was really a mix of these factors, with a clear emphasis on strong corporate-finance backgrounds. Using our experience, diversification and a desire to lock in well-priced, longer-tenor we certainly believe we have established a long-term finance debt. The traditional sweet spot for bank debt has been five strategy for Melbourne University – taking advantage of what years, and accessing debt capital markets provided us with the is a very significant balance sheet. We have assets in excess of opportunity to have various debt lines maturing in different A$6 billion, and leveraging this is key. periods. n PiTT For us it was both an evolution and a desire for n SinTon Following the issuance of an indexed-annuity bond diversification. We have traditionally funded our core capital- in 2003, most subsequent borrowing at the Australian National investment needs using bank funding. This includes research University (ANU) has been through bank debt. and teaching, and the buildings associated with these functions. The decision to pursue MTN issuance was in order to The evolution is that, with a growing number of diversify funding sources and to extend the university’s average international students, we’ve experienced both an increase in debt maturity. We were looking for long tenor, albeit not as demand for infrastructure such as student accommodation long as the USPP market tends to offer – rather something and an increase in revenues to fund such infrastructure. This in the 10-year time frame. So the facts that this maturity was growing need, beyond our core need, is the factor that has available in the domestic market, interest rates are at historical driven our search for other forms of funding – while ensuring lows as well as the opportunity to diversify our funding sources they are appropriate to the type of investment. drove us in the direction of debt capital markets. Issuing Given the strength of the Monash University balance domestic MTNs also enables us to avoid the foreign-exchange sheet, we could simply have gone back to the banks if we had complexities associated with the USPP market. wanted. But we chose capital markets because we believed this way we could access longer tenor than via the bank Symonds Was the decision to access market. For example, our recent USPP transaction contained debt capital markets directly related to “Roughly two months passed from when we started the process to when we actually issued the bond. This is notably quicker than some of the other university transactions and is likely a product of the fact that the market has become more comfortable with the university sector as an asset class.” alastair SinT on A UstrAliAn nAtionAl University 62|kAngAneWs Apr/mAy 2016 the intended use of proceeds from their the lives of people around the world who have hearing and transactions? language disorders. And we used some funds for the purchase n BairD As others have already alluded to, the driver behind of a small shopping centre adjacent to the university campus. our choice of funding was to enable us to best match asset and n SinTon ANU used the funds from the domestic capital- liability life. The university has a long-dated infrastructure need markets transaction primarily for refinancing bank debt, with and debt capital markets offer longer tenor than we could have the remainder earmarked for other operating requirements achieved in the bank market. including capital expenditure. However, the university currently n TaiT It is predominantly infrastructure that underpins our has another funding need and the method of financing is debt strategy. Melbourne University is looking at ways to related to the intended use of proceeds. increase scale – not just in terms of student numbers but The university is exploring interest in outside investment also research capacity and output, industry partnerships and in its student accommodation to help fund an improvement international relationships. This means increasing our numbers and expansion of accommodation and other facilities at of staff and students. Underpinning this is a need for additional the university. The proposal would give investors a 30-year major infrastructure. financial concession, or lease arrangement, over certain There is also competition between universities in terms of student accommodation with the university retaining attracting international students. Student experience is key, so responsibility for operations. it is crucial to ensure the university has cutting-edge facilities to The provision of student accommodation is very provide these students with a first-rate experience. important for ANU for several reasons, including the facts If you look at the best ecosystems for entrepreneurial that the majority of students live away from home and that activity around the world there is always a university-industry the university is primarily based on a large campus in central nexus.