Harvard To Buy Back $300 Million of Bonds

Harvard plans to buy back $300 million of bonds that it sold during the financial crisis, since a reduction in debt would allow the University more flexibility to make new investments, according to Bloomberg.

Harvard, which sold a total of $2.5 billion in bonds in 2008 at the height of the credit crisis, notified investors last month that the University will redeem part of its debt on June 2, according to Bloomberg.

The securities were rated AAA—the highest possible rating—and were set to mature in January 2014 with an annual interest rate of 5 percent.

The “redemption price”—the price at which the bonds can be redeemed—has not yet been set.

Now, Harvard is one of several universities that have begun to buy back debt that was sold during the credit crisis. During the worst of the financial crisis, Harvard sold $1.5 billion in taxable bonds and $1 billion of tax-exempt debt to bolster its cash holdings

Last week, Duke University bought back $500 million, but was required to pay almost a 15 percent premium to redeem $250 million of its bonds that were set to mature in April 2019. Duke also had to pay a 7.9 percent premium for the remainder, which was to mature in April 2014.

Stanford, which borrowed $1 billion in April 2009, announced in January that in light of increased financial stability it will reduce its “liquidity fund” from $800 million to $400 million over the coming months. The $400 million drawn from the liquidity fund will be use to fund capital projects and to refinance higher-cost debt, according to Stanford’s chief financial officer.

This trend indicates that universities are beginning to feel more confident in their financial positions and levels of liquidity.

During the recession, many universities, including six Ivy league schools, sold a combined $7.2 billion of taxable bonds from December 2008 to November 2009 as their endowments suffered serious blows, according to Bloomberg.

Harvard’s endowment weathered heavy losses during the financial crisis beginning in 2008, adding up to a 30 percent dip in the endowment’s value.

Recently Harvard has begun to recover, posting an 11 percent gain in the fiscal year that ended June 30, 2010, which brought the endowment’s value to $27.4 billion.

Harvard manages a portion of its endowment directly and contracts with outside money managers for the remainder.

This past year, Harvard University added to its directly held U.S. traded securities—contributing to a 7-percent increase in the value of those assets to $1.54 billion.

The University made sizable new investments in its already large emerging markets portfolio, according to a Securities and Exchange Commission filing report in November.

—Staff writer Zoe A. Y. Weinberg can be reached at zoeweinberg@college.harvard.edu.

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