Alumni mini-bonds
Higher education
Financing
With funds raised from the issue of UK retail bonds
exceeding £2 billion in the past two years, what
was once an alternative source of funding has the
hallmarks of becoming a mainstream financing tool.
As traditional bank debt becomes harder to secure,
and with retail investors seeking alternatives to low
yielding bank deposits, listed and unlisted retail bonds
have become a credible source of corporate debt.
Whilst institutional bond markets have serviced
the corporate bond market for many years, direct
access to the retail market has more recently
developed through two main channels:
• the issue of listed bonds on ORB (the London
Stock Exchange’s retail bond market), and
• the issue of non-transferable and unlisted
mini-bonds.
Flexibility
Both listed and unlisted retail bonds have several
key advantages over term debt and the wholesale
corporate bond market, including greater flexibility
on maturities and the ability to raise smaller tranches
of debt. They can allow for greater diversification of
funding sources and enable debt maturity profiles to
be flattened, avoiding large maturity peaks.
Unlisted mini-bonds are however even more
flexible than listed bonds and are an emerging form
of debt funding that enables an issuer to retain
control over the fund raising process.
Mini-bonds are typically marketed to customers,
clients or some other cohort that is identifiable to the
bond issuer. A recent example of a mini-bond issue
was the £57 million issue by John Lewis raised from
its employees and customers. For an educational
institution, a target cohort could be its alumni. Issue
sizes for mini-bonds are typically smaller than those
for listed retail bond issues and limited by the size
and receptivity of the target cohort. A pre-requisite
for a mini-bond is that the institution issuing the
bonds has a strong brand and a loyal following.
Efficiency
Mini-bonds are unlisted and because they are
non-transferable, the bond issuer is not required to
publish an FSA approved Prospectus and they are
not subject to a formal on-going disclosure regime
meaning their issue is significantly more cost and
time efficient than listed bonds or listed equity.
Engagement
For a higher education institution, a mini-bond
offers a new way to engage with alumni. Successful
mini-bond issuances to date have offered investors
attractive investment terms and compare favourably
with alternative investment products available to
the public. Whilst the cost of a mini-bond issue is
broadly comparable with senior secured
debt from high street lenders, a minibond has the benefit of being more
flexible when the ‘covenant lite’
and subordinated nature of the
instrument is considered.
Added value
In addition to alumni supporting a higher education institution’s
funding needs by buying a mini-bond, the charitable benefit can
be enhanced and structured in a way that allows alumni to elect to
buy bonds at a market interest rate, at lower than market interest
rate or at a zero interest rate.
Pros
Cons
• An increasingly popular financial instrument
amongst retail investors
• Not transferable, so cannot be bought or
sold during the life of the bond but can be
redeemed on death
• Greater flexibility on maturities and terms and
conditions compared to traditional term debt
and wholesale corporate bonds
• Provide the ability to raise smaller, multiple
tranches and at smaller denominations
• A loyal customer or alumni base should
increase the likelihood of a successful debt
issue
• Can be held within SIPPs
• No requirement to publish an FSA approved
prospectus and not subject to credit ratings
or an on-going disclosure regime
• Relatively cost and time effective issue
process
• Can be issued in a ‘covenant lite’ form and
subordinated to all other debt lines
• Cannot be held within ISAs
• Not covered under FSCS
• Requires a UK ‘PLC’ corporate entity to be
used as the issuer of the bonds
• Market custom requires that the bonds
are guaranteed by a group company of
substance
How Grant Thornton can help
Our funding solutions team are experts in assessing the financing needs of your business. We can advise on
the suitability of mini-bonds as a financing option, structure the bond and project manage the execution of
the bond issue.
For more information on how we can advise you on your strategic business options, please contact:
Philip Secrett
Partner, Advisory
T +44 (0)20 7728 2578
E [email protected]
David Barnes
Partner, Head of Higher Education
T +44 (0)20 7728 2026
E [email protected]
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