UC Philanthropic Bonds
UC Philanthropic Bonds - New Zealand's first listed philanthropic bond is now closed.
About our bond offer
In 2009, UC offered a 10-year, unsubordinated, unsecured, fixed rate bond with philanthropic options. The bond issue is to raise $50 million, with an ability to take subscriptions for a further $50 million.
The funds raised will be used to accelerate our investment plan and develop a world-class environment for scholars across the spectrum of academic disciplines. For example, we are currently constructing a new building for Biological Sciences which would be accelerated.
Government funding has become more constrained and the University has had to think more creatively about ensuring it has enough funds to upgrade all its facilities and become a world-class university. This is an innovative new way to raise funds and to encourage philanthropy at the same time.
Details of the bond
The bond has a 10 year maturity and is repayable on the 15 December 2019. The bond is not callable, therefore the University cannot repay the bond early. The minimum subscription was $5,000 and thereafter multiples of $1,000. The offer closed on 30th November 2009.
The bond is listed on the NZDX – the New Zealand debt market operated by the New Zealand Stock Exchange. The offer was only available within New Zealand.
The rate was a fixed 7.25% for the first 5 years. It was reset at a margin of 1.75% over the prevailing 5 year swap rate at 15 December 2014 to the new rate of 5.77%. Interest is paid twice a year, on 15 June and 15 December.
Prior to this bond issue, the University did not have any term debt. In addition, the University has pledged not to borrow above the following ratios which will safeguard the investment:
- Prior Charged Assets must not exceed 5% of the aggregate of Total Equity plus Total Interest Bearing Debt.
- Total Interest Bearing Debt must not exceed 25% of the aggregated of Total Equity plus Total Interest Bearing Debt.
All the requisite regulatory approvals have been secured to enable the University to issue the bond.
The University has undertaken extensive financial modeling and is confident that it can afford the bond.
The Foundation receives charitable donations for the University and all donations are currently directed towards the Foundation – the principal donations are no different. In addition, the Foundation helps to add additional oversight to ensure that the monies are invested for the University’s future and not used for day to day costs.
When a Bondholder makes a donation of principal, the original bond is cancelled and a new bond is issued to the Foundation which is payable on demand. Should the Foundation believe that the funds are not being spent appropriately by the University, it can call those bonds and spend the money on the correct causes.
Murray & Company and First NZ Capital are the Joint Lead Managers.
Trustees Executors are the trustee.
|Issuer:||University of Canterbury|
|Offer size:||Up to NZ$50m
(with ability to accept $50m oversubscriptions)
|Instrument:||Fixed rate, unsubordinated, unsecured bonds|
|Rating and listing:||Unrated|
|Listing:||Application to the NZDX|
|Interest:||7.25% p.a. for the first 5 years and reset at 1.75% p.a. over the then prevailing 5 year swap rate|
|Interest payments:||Semi-annually on 15 June and 15 December. First interest payment paid 15 June 2010 to original subscriber|
|Maturity:||15 December 2019 (10 years)|
|Parcel size:||Minimum $5,000 and multiples of $1,000 thereafter|
|Purpose:||Proceeds used to support University of Canterbury’s capital investment programme|
|Closing date:||30 November 2009|
|Allotment date:||Continuous allotment throughout the Offer with interest payable from allotment. The University intends to reserve the last $25m out of $100m for committed donors and alumni.|
How philanthropic bonds work
A philanthropic bond is the same as an ordinary bond except it has philanthropic options by which a donor can make a charitable gift of bond principal to the University of Canterbury Foundation or make an interest adjustment. Philanthropic options are not compulsory. An investor does not have to elect any option to the University – although the University hopes that many investors will choose to give in one way or another.
The two options are to either donate the principal of the bond to the University (via the Foundation) or to reduce the interest that the University pays the investor.
You can also donate your principal but still receive all your interest on the face value of your original holding.
Individuals and companies may get a charitable tax deduction for the value of the donation although this may not be equal to the face value of the bond due to time differences to maturity. However, reducing the interest paid does not have any tax impact.
Should your circumstances change, you can elect to receive interest on your bonds once again. However, a donation of principal is irreversible.
If have donated the principal you cannot sell the bond. However, if you have reduced your interest you may still sell the bond as this election is automatically reversed on sale.
Benefits to UC
The University hopes that some Bondholders may choose one and/or other of the philanthropic options and reduce the burden on the University. However, should there be no donations at all, the University can still meet its commitments under the bond.
Unlike a loan from a bank, a retail bond allows the University to borrow for a longer period of time – 10 years – where as any bank facility would provide certainty of funding for a maximum of 3 years. In addition, philanthropic options are only possible through a retail bond issue.