SAN FRANCISCO — The University of California this week will sell $500 million of 100-year bonds in an effort to attract pension fund and overseas investors.

The university’s 100-year bonds backed by revenues will be taxable, which will likely mainly attract pension funds or foreign investors that are normally interested in U.S. Treasury bonds.

“Hundred-year bonds are quite uncommon in the municipal market,” said Michael Pietronico, chief executive and head of fixed-income research at Miller Tabak Asset Management.

“Not only are they likely looking for potential pension money, but they are also possibly trying to appeal to overseas investors,” he said.

Pietronico said the deal would also help fill a shortage of long-term bonds in the market because the Federal Reserve has been gobbling up so many Treasury bonds.

The university system, California’s  largest, will have the final pricing for the revenue bond sale with institutional investors Wednesday or Thursday, according to the university’s capital market finance department.

University officials said they may increase the size of the deal if yields remain low enough.

As of last week, officials said they had around 15 institutional investors interested in the bonds.

The money raised from the bonds will be used to fund various capital projects.

Moody’s Investors Service on Friday released a report giving the university’s century bonds a Aa1 with a stable outlook.

The agency noted the system’s outstanding debt will be near $18 billion after the sale.

The university has $2 billion of authorized but unissued debt.

Moody’s said the university’s financial strength stems from its solid reputation and its position as the largest higher education system in the country. Last year, the it had more than 230,000 full-time students.

“It also incorporates UC’s ability to leverage its market position to raise revenue and reduce expenses while maintaining a robust balance sheet despite continued reductions in state appropriations and potential cuts in federal research funding,” Moody’s said.

However, the rating agency said the system still faces growing debt and rising exposure to liabilities from pensions and other post-employment benefit plans, which, according to Moody’s, are the largest of any university system in the country.

Analysts said very few universities provide their own defined-benefit plans to employees.

The university’s general revenue bonds are rated AA-plus by Fitch and AA by Standard & Poor’s. Both agencies give the bonds stable outlooks.

Goldman, Sachs & Co. will lead the sale, along with Barclays Capital.

Orrick, Herrington & Sutcliffe LLP is bond counsel.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.