UK unis raise funds on capital markets THE LONDON School of Economics has borrowed £125 million ($230 million) from investors to redevelop its campus, following a fashion for universities tapping capital markets to fund their expansion. The LSE borrowed from three large life assurance companies for between 15 and 40 years. It comes after the first foray into the capital markets last year by the University of Cambridge, which raised $630m with a 40-year bond to help to finance its second campus. The Cambridge bond was heavily over-subscribed and was followed this year by the University of Manchester, which borrowed $5.4m by issuing a public bond to redevelop its city campus. More universities are expected to seek similar arrangements for long-term borrowing. In the past, they have used bank lending for long-term financing, but, while short-term bank interest rates remain attractive, higher long-term interest rates mean that such loans are no longer viable. In addition, higher tuition fees of $16,000 a year mean that universities receive more income directly from students, while heavy cuts in capital grants available to universities have restricted another source of funding: while philanthropic giving is becoming more important, many universities want to use donations to fund bursaries or build long-term endowments. By using a private placement, the LSE did not need a credit rating to raise the funds. Instead, it asked Barclays to arrange presentations for LSE to pitch to interested parties. These set out the school's long-term strategy, student demand and research strength, plus its leadership governance and financial position, and invited potential investors to make their own assessments. The LSE's student body includes 37.5 per cent of international students, the highest proportion at any British university, who pay almost double the fee for British and European Union undergraduates. The outcome was that the LSE was able to borrow three tranches of funds, maturing over 15, 30 and 40 years, with an average interest rate of just over 4 per cent up to 2028 and a little under 4.25 per cent until 2053. Such rates offer life assurance companies an attractive long-term fixed income. The money will be used to refurbish a newly acquired building in Lincoln's Inn Felds and to redevelop two other buildings within its campus. Cambridge, which was awarded a top credit rating of AAA, is paying an interest rate of 3.75 per cent on its bond. Manchester, whose rating was Aa1, has a yield on its bond of 4.25 per cent. Andrew Farrell, LSE's chief financial officer said: "Since the 2008 financial crisis, it is no longer sensible for universities to borrow long-term money directly from banks, as rates of interest would not be competitive. Public bond issues and private debt placements are likely to be the main forms of long-term finance for universities in the UK for the foreseeable future.