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Harvard University to Enter the Debt Market for $750 Million Taxable Bond Sale

Massachusetts Hall, where the President and senior administrators work, is located in Harvard Yard. Harvard will enter the debt market Friday, issuing $750 million in taxable bonds.
Massachusetts Hall, where the President and senior administrators work, is located in Harvard Yard. Harvard will enter the debt market Friday, issuing $750 million in taxable bonds. By Julian J. Giordano
By Thomas J. Mete, Crimson Staff Writer

Harvard will officially enter the debt market on Friday when it issues $750 million in taxable bonds with the intention to use the capital raised for “general corporate purposes” and to pay the costs of bond issuing, according to a preliminary offering notice released on Thursday.

The statement follows a Monday filing from the University announcing its intention to enter the market for $1.65 billion in debt financing with Goldman Sachs & Co. as the sole bookrunner.

The University is under no legal obligation to disclose its intended use of the funds raised from the sale of taxable bonds issued by the Harvard Corporation, the University’s highest governing body.

When issuing taxable bonds it is common practice for firms to state that the capital raised is for “general corporate purposes,” and to use funds to cover commission, registration, accounting and legal fees.

The planned $750 million issue of the taxable debt financing is “unusual but not unprecedented,” and allows for borrowing that is not directly tied to a specific capital project, according to Harvard Business School professor Luis M. Viceira.

“Taxable debt typically carries a rate higher than the rate on tax exempt debt, so it is in the interest of the university to issue that type of debt only when there is a very good reason to do so,” Viceira wrote in a statement.

A Harvard spokesperson declined to comment on the preliminary offering notice.

The rollout of Harvard’s latest debt financing comes amid rising overall investor confidence as corporate bond and U.S. Treasury bill yields have continued to fall. The credit spreads highlight a favorable opportunity to enter the bond market as investors demand for corporate bonds continues to grow.

“A long-term bond issue is probably the wisest thing to do at the present juncture since the current yield curve is inverted,” wrote Rutgers Business School professor John M. Longo in a statement.

“In other words, the annual yield on long-term interest rates is lower than that of short-term interest rates,” he added.

Harvard is expected to capitalize on the favorable market conditions and their AAA credit rating — which was cemented by a S&P report on Thursday — to secure lower yield rates than traditional corporate bonds, demonstrating the University’s extremely low default risk.

“Given Harvard’s AAA credit rating, I estimate the yield on a taxable 10-year bond issued by Harvard to be similar to the current yield of 4.25% on the 10-year U.S. Treasury Note,” Longo wrote.

Thursday’s announcement marks the first of two bond series that the University plans to take to the market in the coming months: $750 million of taxable fixed rate bonds and $900 million tax-exempt fixed rate bonds. Harvard’s planned tax-exempt bond sale issued by the Massachusetts Development Financial Agency is expected in the coming weeks.

—Staff writer Sidney K. Lee contributed reporting.

—Staff writer Thomas J. Mete can be reached at Follow him on Twitter @thomasjmete.

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