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Harvard to Issue $1.1 Billion in Bonds, Capitalizing on Low Interest Rate

The Harvard Management Company manages Harvard's endowment and related financial holdings.
The Harvard Management Company manages Harvard's endowment and related financial holdings. By Steve S. Li
By Ellen M. Burstein and Camille G. Caldera, Crimson Staff Writers

Harvard plans to issue $1.1 billion in bonds to capitalize on low interest rates, Bloomberg News reported Thursday afternoon.

The University will sell up to $573 million in revenue bonds through a state agency, use the proceeds to refinance outstanding debt, and sell $500 million in taxable bonds for “corporate purposes,” according to a report from Moody’s Investors Service this week.

University spokesperson Jason A. Newton wrote in an email that the transactions constitute “active financial management designed to lock in lower rates.”

Susan Shaffer, a vice president at Moody’s, told Bloomberg that the transaction is “part of a long-term planned debt activity” because the University's “liquidity is ample.”

Experts say Harvard’s decision is consistent with sensible financial strategy.

John M. Longo, a professor at Rutgers Business School, said he approved of Harvard’s decision to issue bonds given current interest rates. The Federal Reserve cut its baseline interest rate range to 0 to 0.25 percent in mid-March.

“It is smart for an institution like Harvard, with a stellar credit rating, to issue debt with interest rates across the entire maturity spectrum near all-time lows,” Longo wrote in an email.

Harvard has the highest-possible credit rating, an Aaa, from Moody’s Investor Service.

“The money could be used for a number of reasons, including refinancing existing debt, to fund operations, or to put to work in attractive investment opportunities,” Longo added.

Christian T. Lunblad, a business professor at the University of North Carolina at Chapel Hill, wrote in an email that the transactions seemed “pretty reasonable.”

In addition to refinancing its debt, Lundblad speculated that the “corporate purposes” could include relief from diminishing revenues amid the coronavirus pandemic.

As the public health crisis progresses, the University’s financial challenges amass: Harvard faces a potential endowment hit and the loss of major revenue streams, including executive education programs.

“Depending upon the specifics laid out in the bond issue, that may simply be a sort of bridge loan to get through the large reduction in revenues in the face of fixed costs (faculties, faculty, etc.) that have to be paid,” Lundblad wrote.

Thomas D. Parker '64, a senior associate at the Institute for Higher Education Policy, cautioned that Harvard should be conscious of the optics of borrowing.

“Harvard needs to be careful that this doesn't leave the impression that it now has plenty of money and doesn't need to make reductions in spending,” Parker wrote in an email. “No reason why it won't have to do some of the same things Princeton has announced for similar reasons.”

Princeton University Provost Deborah “Debbie” A. Prentice wrote in an email to faculty and staff Wednesday that the University plans to suspend salary increases for faculty and staff unless previously agreed upon, according to the Daily Princetonian. The email also said Princeton will only make new hires in rare cases.

In the aftermath of the Great Recession in 2009, Harvard issued $2.5 billion in bonds, increasing its total debt to over $6 billion. In 2016, Harvard sold another $2.5 billion in bonds to refinance some of that debt.

As of June 30, 2019, Harvard had $5.2 billion in outstanding bonds, according to its most recent financial report.

—Staff writer Ellen M. Burstein can be reached at Follow her on Twitter @ellenburstein.

—Staff writer Camille G. Caldera can be reached at Follow her on Twitter @camille_caldera.

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