London School of Economics Raises £175 Million in Private Debt

(Bloomberg) -- The London School of Economics and Political Science has raised 175 million pounds ($230 million) through a private bond sale.

The proceeds, earmarked for green and social projects, will help fund a net-zero carbon building development, energy efficiency across its existing premises, as well as scholarships and post-graduate study, according to a university spokesperson.

Several of the U.K.'s top tier universities, including the University of Edinburgh and Imperial College London, have borrowed money through the private placement market in recent years, typically using the funds to invest in new projects in order to compete with their peers.

U.S. and British institutional investors, such as insurance companies and pension funds, are typically the buyers of U.K. university private debt. Though investors often expect an illiquidity premium over public markets, borrowers can use private debt to raise smaller amounts of money and issue at longer maturities. The LSE's new bonds mature between 35 and 50 years.

“With public markets, you get a single drawdown and bullet repayments, whereas in the private market you get a spread of tenors which is more helpful for us,” said Mike Ferguson, the LSE's chief financial officer.

The deal, arranged by NatWest Markets Plc, attracted almost 500 million pounds of orders from an initial target of 110 million pounds. A portion of the debt will not be drawn for five years.

“Most private placement investors are open to a 1-year delay draw and a smaller number can consider longer delays,” said Sonia Gadhia, a director in the private placements team at NatWest. “The 5-year delay draw that LSE achieved was pretty unique.”

The debt was issued under LSE's new sustainable framework, which S&P Global Ratings issued a second-party opinion on. Previously the university has sold private bonds with interest rates ranging from 3.73% to 4.15%, according to the LSE's 2021 annual report.