--University of Pennsylvania sells first 100-year bond
--Yield of 4.674% undercuts Caltech deal from last year
--UPenn will use proceeds for energy-efficient projects
By Mike Cherney and Patrick McGee
The University of Pennsylvania achieved the lowest yield on record for a 100-year bond issued by any university or corporation, according to a source familiar with the deal.
The University of Pennsylvania bond, scheduled to mature on Sept. 1, 2112, priced at 1.40 percentage points over the 30-year Treasury rate, a term sheet showed. Its yield was 4.674%, undercutting the 4.744% achieved by the California Institute of Technology in November. At the time, Caltech officials said they believed they had achieved the lowest rate ever.
The issue was increased to $300 million from $250 million on Thursday.
Universities have been active participants in the century-bond market in recent months to take advantage of some of the lowest borrowing costs in decades. The taxable market provides more flexibility and fewer compliance costs than the municipal bond market, so issuers are willing to give up the advantages of the tax-exempt market.
Stephen Golding, the university's treasurer, said this is the first time the institution is issuing a century bond.
"We've been very judicious in our selection of opportunities to go to market," he said, calling the offering "a very strategic move."
Universities with large endowments manage their assets over the long term, so they can justify borrowing over the long term too, said Andrew Hofer, managing director at Brown Brothers Harriman.
"They view their endowment as a 100-year asset, so frankly when universities borrow they are leveraging their endowment," Hofer said. He noted there is a sizable community of investors interested in hedging potential deflation with ultralong-term, fixed-rate debt.
Last week, the university's board of trustees authorized a sale of up to $350 million in bonds "to take advantage of the market," for a term up to 101 years and bearing a fixed or variable rate, according to its website.
The proceeds will go toward the university's "climate action plan," allowing the school to complete more energy-efficient projects more quickly.
In February, the University of California system sold $860 million in century bonds, increasing the size from $500 million after getting strong demand from investors. In 2011, the Massachusetts Institute of Technology, University of Southern California and California Institute of Technology sold century debt.
The dominant holders of century bonds are U.S. mutual-fund investment managers such as the Pacific Investment Management Co., according to data provider Ipreo.
In analyzing four recently issued century bonds from universities--Ohio State, MIT, Cal-Tech, and the University of California--the data provider Ipreo found mutual funds own 86% of the issues, which total $845 billion. Insurance companies own only 4%; investment managers, municipal pension funds and others own the rest.
By region, 90% were held by U.S. firms.
The top century-bond holder of the four university deals is PIMCO, with $200 billion, followed by Manulife Asset Management, with $169 billion, and Aviva Investors North America, with $70.9 billion.
The bookrunners on the deal are Goldman Sachs Group Inc. (>> Goldman Sachs Group, Inc.), Morgan Stanley (MS) and J.P. Morgan Chase & Co. (>> JPMorgan Chase & Co.). The debt is rated Aa2 by Moody's and AA+ by Standard & Poor's.
-By Mike Cherney and Patrick McGee, Dow Jones Newswires; 212-416-3163; [email protected]