SFU looks to bond market

Feb 06, 2003, vol. 26, no. 3
By Diane Luckow

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SFU hopes to raise significant capital in the coming months by offering a long-term, private placement bond issue in the Canadian capital markets.
“Our strategy is to lock in long-term, low-cost capital that we can draw upon to improve old facilities and build new facilities to help meet our growing enrollment demand,” says SFU President Michael Stevenson, who notes that interest rates are near historical lows.

SFU is joining a new but growing trend. By the summer, 10 universities across Canada will have issued such bonds over the past two years, raising $1.5 billion for capital expenditures on university infrastructure. It is expected that SFU's offering will be within the same range as that offered by the other universities - between $90 and $200 million.

The trend is triggered by provincial governments' reluctance to increase long-term debt on behalf of universities and by Canadian universities' efforts to match rising enrollment demands with appropriate services.

All university bond issues to date have been well received, inspiring confidence that SFU's issue will also do well. “There's a real appetite among institutional investors for long-term, stable investments,” says Pat Hibbitts, SFU's VP-finance and administration. “Institutional investors consider universities to be stable institutions which the public is committed to over the long term.” She notes that there is a growing demand for post-secondary education in response to the knowledge economy, as well as widespread interest in lifelong learning.

In order to pay the interest on the bonds that will come due in either 30 or 40 years, only capital projects with revenue streams will be considered, such as new student residences and parking garages, other projects that will be reimbursed through user fees, or projects for which grants will flow from non-provincial sources. Academic buildings will continue to be funded by the provincial government.

“With the bond issue, the university will be able to make autonomous choices about funding capital expenditures,” says Stevenson.

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