Actionable Ideas for Companies and Sponsors

Higher Education and Healthcare Issuers Should Consider Issuing Century Bonds

Not-for-profit issuers that normally sell tax-exempt bonds, in particular higher education and large, highly rated healthcare issuers, should consider issuing Century Bonds to lock-in committed long-term fixed cost of capital funding. A Century Bond is a taxable fixed rate bond with a 100-year bullet maturity, and although Century Bonds represent a somewhat higher cost of funding than traditional tax-exempt financing, the flexibility of the use of proceeds and the long-term relatively low-cost equity-like funding make Century Bonds particularly attractive for many issuers. Proceeds of Century Bonds have been used for deferred maintenance, working capital, to restructure existing debt, and to fund internal “banks” that take advantage of the long-term committed funds to recycle the proceeds for multiple projects over the 100-year term. Century Bonds price at a spread over the 30-year U.S. Treasury yield and, given current attractive market conditions, they represent an opportunity for low cost ultra-long-term funding.