The North West Cambridge development is the largest real estate project ever undertaken by the University, aiming to provide 3,000 homesDaniel Gayne

The University has announced that it has priced £600 million of bonds for investment in ambitious revenue-generating projects, including the next stage of the controversial North West Cambridge Development.

These new bonds will bring Cambridge’s long-term balance sheet debt to £936m – 19.5% of net assets – following an initial £350m bond in 2012.

The University received permission from Regent House in April to arrange further external borrowing from £300m to £600m, including the element of CPI-linked borrowings.

While the targeted use of the funds is not specified, University Council emphasised in its April report a need to develop Cambridge’s non-operational estate, including Phase 2 of the North West Cambridge site – expected to cost between £300m and £400m – as well as the redevelopment of the Royal Cambridge Hotel, commercial development of the old Cambridge Assessment buildings, and the Old Press Mill Lane site.

The North West Cambridge development aims to provide affordable housing for Cambridge staff as the city faces an increasingly acute housing crisis, as well as to provide graduate accommodation and additional academic and research spaces.

Concerns have, however, been raised about the business case for the bond, particularly given the University’s record on the first phase of North West Cambridge. Mismanagement of Phase 1 of the project caused Cambridge to breach its borrowing limit, as a 2015 audit found that “systematic” failures had led to rampant overspending.

A dissent by University Council members Ross Anderson and Ruth Charles to the Regent House recommendation in April noted that the development’s first phase was two years late and £100m over budget. “As Trustees we should insist on greater financial and procedural clarity surrounding a second bond before proceeding”, they added.

Speaking to Varsity, Clément Mouhot, a mathematician and fellow at King’s, raised concerns that the bond would lead to the financialisation and privatisation of the university, noting that the bond would “require the inhuman ‘de-risking’ of universities”.

Half of the total issuance has been made in a tranche, or portion, with a fixed interest rate of 2.35%, repayable in 60 years’ time. A second tranche of £300m is believed to be the first of its kind in UK bond markets, with an interest rate of 0.25%, repayable in equal annual instalments over a period of between 10 to 50 years.


Mountain View

Deconstructing Cambridge’s billion-pound debt

Both principal and interest payments of the second bond will be linked to any annual rise of between 0-3% in the Consumer Price Index (CPI), meaning that the second bond is slightly riskier, but will yield the University higher returns if interest rates stay low.

Cambridge Chief Financial Officer Anthony Odgers said in regards to yesterday’s announcement: “We knew we were doing something unique with the CPI-linked bonds and that has really paid off with the enthusiastic reception in the market, the tight pricing and the collar.”

The bonds are yet to be rated, but the University’s first bond in 2013 was given the highest possible rating of AAA by credit rating agency Moody’s – a rating superior to that received by the UK government.

Commenting on the bonds today, Vice-Chancellor Stephen Toope, said: “We are delighted by the success of today’s bonds, which shows the confidence that investors have in the University, its mission, and its growth strategy in the years ahead.”