Cambridge University retains AAA rating in spite of UK credit crisis

Tian Zhong - News Reporter 8 March 2013

Both Moody’s and the University of Cambridge’s Director of Finance have confirmed the stability of Cambridge’s triple-A credit rating, despite the recent downgrading of the UK government’s rating, and a subsequent downgrading of some British universities who receive state funding.

A recent report from Moody’s revealed that De Montford and Keele Universities, the other two British universities on the bond market, were downgraded to Aa2 with negative outlook, reflecting “the ongoing uncertainty in the sector with respect to the full impact of the funding reform and strength of domestic and international student numbers.” This followed a downgrading of the UK as a whole due to expectations of “continuing weakness in the UK’s medium-term growth outlook”, according to Moody’s.

Andrew Reid, Director of Finance, explained that Cambridge University is not exposed to sovereign risk to the same extent as its peers at the University. He told The Cambridge Student that “Only a minority of the University’s funding comes from the state. Therefore, even though the UK government has been downgraded one notch, the rating agency did not consider that this had a material effect of the University’s rating.”

However, Moody’s has also claimed that the University could risk being downgraded if there were to be “a sustained deterioration in the value of its endowment funds or a significant increase in borrowing that outpaces revenue and resource growth.”

Cambridge’s endowment returned 2.1 percent in the last fiscal year; a sharp decline from 16.1 percent and 19.2 percent in the previous two years but still better than the performance in 2009 of -11.1 percent return.

American peers similarly faced a drop in their endowment returns, with Yale receiving a return of 4.7 percent last year, and Harvard incurring a loss of 0.05 percent.

The £350 million bond issued by the University last October is now considered less risky than UK government debt. Mr Reid explained that the better credit rating of Cambridge bonds is likely to have “increased marginally its attraction to investors looking for a long term low risk investment.”

“Provided that we keep our excellence and our prudent financial management and strong governance structures, there is no reason to believe the rating will move in the short or medium term.”

Tian Zhong – News Reporter