Preparing to Finance Capital Projects, Harvard Will Issue $191 Million in Tax Exempt Bonds

Harvard will take initial steps next week toward issuing about $191 million in tax-exempt bonds, refunding existing debt and financing capital projects through borrowing.

Goldman Sachs, which is underwriting the bonds, will begin taking orders from potential bondholders and will begin pricing two series of fixed-rate bonds, according to Harvard’s Assistant Treasurer Laura C. Sander.

The first series, 2005A, will total about $90 million and is designed to provide long-term financing for several capital projects.

None of the projects are new: they include a building at 60 Oxford St., an underground parking garage at 1 Western Ave., the Harvard Business School Technology Operations Center, and relocations stemming from the renovation of Baker Library.

The University has already financed those projects in the short term using commercial paper, or unsecured loans.

A portion of the Series 2005A bonds will also partially reimburse the University for the cost of a lease it bought in September 2001 from a hospital affiliated with the Harvard Institutes of Medicine.

Goldman Sachs will also price a second bond series next week. Series 2005B, at $101 million, which will refund outstanding bonds issued in 1995, Series P. The new bonds’ lower rates will enable Harvard to decrease borrowing costs.

Both deals will be priced next week, but money won’t actually move until the closing in August when Harvard refunds its old Series P bonds. This lag time enables Harvard to take advantage of favorable market conditions.

Harvard is sitting on an endowment of $22.6 billion, but by issuing bonds, the University can finance capital projects without dipping into the endowment or affecting operating costs.

“We have the opportunity to use tax-exempt debt, which is a really low-cost financing vehicle,” Sander said. “When we can borrow money from other people at attractive tax-exempt rates, it’s very favorable to the University.”

—Staff writer Nicholas M. Ciarelli can be reached at ciarelli@fas.harvard.edu.