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California State Treasury sells $860 million worth of UC bonds

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FEBRUARY 23, 2012

The California State Treasurer’s Office sold $860 million worth of University of California 100-year bonds, which will be used to fund capital projects at the university, to 70 large investors Tuesday.

The money raised from the sale of the bonds — which mature over the course of a century and pay about 4.9 percent semiannual interest rates in May and November — will be used for long-term UC capital projects approved by the UC Board of Regents, according to UC spokesperson Dianne Klein. The bonds will also fund individual capital projects at UC Berkeley, UC San Diego and UCLA, including a portion of the repair of Memorial Stadium, according to Klein.

The UC originally anticipated an offering of $500 million, but investor demand was so great that the amount was increased, Klein said in an email. According to UC Berkeley spokesperson Janet Gilmore, the campus is expected to receive 15 percent of the revenue from the bond sale.

UC bond sales are part of standard operating procedure and take place a handful of times each year, but this sale was unprecedented because of its 100-year maturation period combined with the large value of the sale, according to Tom Dresslar, director of communications at the treasury.

The 100-year bonds were designed to appeal to institutional investors, including insurance companies, hedge funds, banks and pension funds, whose interests span multiple generations, according to Klein.

Dresslar said the bond sale is not “in any way a maneuver” to replace lost state funding to the UC’s general fund — it is a new source of revenue for future investments.

“Bottom line is, they thought they were getting a good deal, and we thought we got a good deal,” he said. “It worked out for both sides.”

In August 2009, the UC announced that proceeds from approximately $1.05 billion in federal stimulus “Build America Bonds” sold to the public would help fund about 70 capital projects on all ten UC campuses.

In a press release following the 2009 bond sale, Moody’s, a ratings agency, explained the appeal of UC bonds in a shaky economy, since the university has the ability to raise its revenue by increasing student tuition despite state budget cuts.

“In-state tuition has increased dramatically,” the press release stated. “And the out-of-state market remains a comparatively untapped resource that could provide additional growth in tuition revenue should State funding be cut further.”

Fitch Ratings, a global ratings agency, gave the bonds AA+ status, stating in a Feb. 15 press release that the bonds’ outlook is “stable.” The rating, along with returns well above the approximately 3.2 percent interest rate for 30-year U.S. Treasury bonds, made the bonds appealing to financial markets.

“These investors are betting that UC will still be around in 100 years and doing well,” Klein said in the email. “They view the University of California as a sound investment.”

UC Chief Financial Officer Peter Taylor said in a statement that the sale was a shrewd maneuver by the UC to capitalize on the current economic climate.

“We are very pleased with the final outcome of the transaction,” he said in the statement. “The University was able to opportunistically capture current market conditions and completed the transaction in under a month from execution start to finish.”

Contact Charlie Smith at 


FEBRUARY 23, 2012

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