University of Canterbury Philanthropic Bond Issue –
- What sort of bond is this?
It is a 10-year, unsubordinated, unsecured, fixed rate bond with philanthropic options.
- How much money are you raising?
The issue is for $50 million with an ability to take subscriptions for a further $50 million.
- How long is the term of the Bond?
The bond has a 10 year maturity and is repayable on the 15 December 2019.
- Can the University repay the bond before maturity?
No, the bond is not callable, the University cannot repay the bond early.
- What’s the rate of the Bond?
The rate is fixed 7.25% for the first 5 years. It is then reset at a margin of 1.75% over the then prevailing 5 year swap rate.
- How often do you pay interest?
Twice a year on 15 June and 15 December.
- Is there a minimum application?
Yes, a minimum subscription of $5,000 and thereafter multiples of $1,000.
- When is the closing date to apply?
The offer closes on 30th November 2009
- I see the bond is unsecured. How do I know that I will get my money back?
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.
Yes, it will be listed on the NZDX – the NZDX is the New Zealand debt market operated by the New Zealand Stock Exchange.
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.
No – the philanthropic options are just that – options. 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.
Yes, you can. You can donate your principal but still receive your interest on the face value of your original holding.
Yes, in some cases. 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.
In the case of reducing interest payments – yes. Should your circumstances change, you can elect to receive interest on your bonds once again. However, a donation of principal is irreversible.
You cannot sell the bond if you have donated the principal. However, if you have reduced your interest you may still sell the bond as this election is automatically reversed on sale.
No, not at all. But the University is hoping that some Bondholders may choose one and/or other of the 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.
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.
A retail bond allows the University to borrow for a longer period of time – 10 years – where as any bank facility would be provide certainty of funding for a maximum of 3 years. In addition, philanthropic options are only possible through a retail bond issue.
All the requisite regulatory approvals have been secured to enable the University to issue the bond.
The funds raise 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.
The University has undertaken extensive financial modeling and is confident that it can afford the bond.
The Foundation is the organization that 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.
Yes, Trustees Executors are the trustee.
No, this offer is only available within New Zealand.
There are a number of ways to apply. If you already have a broker, you may contact them and they should be able to provide you with an investment statement. You can also call 0800 162 222 which is a hotline set up for the course of the offer. Or you can go to the website www.bonds.canterbury.ac.nz where you can download the Investment Statement which includes the application form.