For the first time in its 800 year history, Cambridge University is planning to issue bonds in order to fund two residential and research development projects.

The University intends to revitalize its residential and academic facilities through the construction of a new housing development in the northwest of the city and the improvement of the New Museum and Old Press sites in the city centre.  In order to finance the venture, a sum of £200-300 million is expected to be raised from the borrowing.

Cambridge’s investment assets are currently valued at approximately £4 billion, yet Andrew Reid, the University’s finance director, is certain that “the value of funding we anticipate needing, and the term we are looking at of 30 to 40 years, suggest that a bond issue is likely to be the best way forward”.

Before deciding to issue bonds, which should occur within the next 6 to 12 months, financial advisors for the University claimed that alternative methods of generating capital for the projects were inadequate. Mr Reid stated that "cash flows from its regular operations will be insufficient for such major expenditure and external financing will be required”.

The University will seek to capitalise on a recent boom in the bond market. While banks continue to limit the amount of money loaned following multimillion-pound losses during the credit crunch, the market has seen an increase in the issuing of bonds by well-known companies and those with high credit ratings.

It is anticipated that Cambridge will earn the highest possible AAA credit rating. The University will also benefit from the estimated time gap between the issue of bonds and the payment of building contractors upon the projects’ completion; predicted in 3 years time. This time gap will allow for a 2 to 3 year investment of the funds elsewhere.

The move follows the trend established by America’s Ivy League universities, such as Harvard and Yale, who frequently rely on endowment investments and the issuing of bonds to contribute considerably to their incomes. In the past, the universities of Cambridge and Oxford have also introduced American-style internal investment boards in order to reduce dependence on government funding.

With cuts of £398 million in state funding expected, other British universities have also resorted to increasing their debts in order to raise money. However issuing bonds is not an entirely new tactic: in 1995, Lancaster University issued bonds in an attempt to generate a sum of £35 million and has since declared an £80 million refinancing of the debt, marking the endeavour as a complete success.

Individual colleges within the University have also benefitted from independent investment opportunities. In October 2009, Trinity College increased their land and property investments after spending £24 million in order to buy the 999-year lease on the O2 arena. Last year Clare College invested money in stocks and shares which they expect to deliver a £36 million profit.

Hugo Foxwood, a credit analyst at Standard & Poor’s, observed, “Many universities feel under intense pressure to spend on infrastructure, which can be vital for recruiting top research staff from overseas, competing for international students, and coping with the rising expectations of fee-paying home students.”