Taking advantage of historically low interest rates, Tufts University completed a 100-year bond offering for $250 million on March 22. The so-called century bond has a rate of 5.017 percent, which will come due in 2112.
The proceeds from the century bond sale will be used to pay for capital and infrastructure projects in the university’s five-year capital plans, including deferred maintenance of campus facilities and selective renovation of buildings, upgrades in student and research administration information systems and new construction.
As the bond was offered, the university maintained its highly favorable financial ratings—Aa2 and AA- by Moody’s and Standard & Poor’s, respectively. Tufts is seen as a low-risk investment due to its status as a top national university and its strong financial position.
“This is a sign of the strength of who we are as a university and our history of sound financial management,” says Patricia Campbell, the university’s executive vice president.
Tufts isn’t the only higher education institution to take advantage of this financing tool. In the past year, MIT, the University of California, the University of Southern California, Ohio State University and the California Institute of Technology have issued century bonds. Under the terms of the bond, Tufts will make interest payments over the coming 100 years, and only pay back the principal in 2112, when it’s expected the value of the money will be far lower that it is today. Buyers of century bonds are typically large, institutional investors.
“It’s a fabulous rate that you can lock in for a very long period of time, and it provides a hedge against inflation,” says Campbell.
The bond is a taxable debt instrument, which gives the university more flexibility in how the funds are used than tax-exempt bonds, says Campbell. If this financing opportunity hadn’t arisen, the university would likely have issued a series of smaller, tax-exempt bonds to pay for the planned capital improvements, she says.
J.P. Morgan and Barclays were the lead underwriters for the university’s bond issue.
Taylor McNeil can be reached at email@example.com.