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Harvard to Issue $2.5 Billion in Bonds

By Andrew M. Duehren and Daphne C. Thompson, Crimson Staff Writers

UPDATED: October 5, 2016, at 12:50 a.m.

Harvard plans to issue more than $2.5 billion in bonds this week to refinance a portion of the billions of dollars the University borrowed after financial markets crashed in 2008, prompting credit rating agencies to reaffirm Harvard’s AAA status as a borrower despite “muted investment performance.”

University leaders are selling bonds at the same time that they are deciding how to best buy securities from large financial institutions. In fiscal year 2016, Harvard’s endowment shrank from a value of $37.6 billion to $35.7 billion, a drop that University President Drew G. Faust said will affect budgets across Harvard.

Although the almost $2 billion decrease in the value of Harvard’s endowment has not yet affected the University’s ability to borrow, Moody’s bond rating agency cautioned that further investment losses could crimp Harvard’s creditworthiness.

“Credit challenges include a heavy budgetary reliance on endowment spending in the face of more muted investment performance, significant investment complexity requiring close oversight, and high financial leverage,” read the Moody’s report.

After the financial crisis, Harvard faced a liquidity crisis and was forced to issue around $2.5 billion in bonds over the 2009 fiscal year, increasing its total debt to more than $6 billion. The University decreased its debt holdings slightly over the next six years, but still owes around $5.2 billion, according to Moody’s.

Harvard is expected to issue both preliminary tax-exempt bonds worth roughly $1.54 billion through the Massachusetts Development Finance Agency, and preliminary tax-liable bonds worth about $980 million. The bonds will refinance standing debts, a move Alan Schankel—a municipal bond strategist at Janney Capital Markets—said is a sound one.

“These $2.5 billion in loans will actually improve Harvard’s financial position, since most of the proceeds will be used to refund a like amount of outstanding debt,” Schankel said.

While the recent performance of Harvard’s enormous investment portfolio has been underwhelming, its fundraising success has buoyed its financial prospects. The University has raised over $7 billion in its ongoing capital campaign, which will conclude in 2018.

—Staff writer Andrew M. Duehren can be reached at Follow him on Twitter @aduehren.

—Staff writer Daphne C. Thompson can be reached at Follow her on Twitter @daphnectho.

This article has been updated to reflect the following correction:

CORRECTION: October 5, 2016

A previous version of this article incorrectly stated that Harvard has issued more than $2.5 billion in bonds last week. In fact, they will issue the bonds later this week.

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