Harvard University floats US$1.65bil debt sale

The university is planning to borrow as much as US$750mil of taxable fixed-rate bonds and US$900mil of tax-exempt bonds. — Bloomberg

NEW YORK: Harvard University is considering the sale of as much as US$1.65bil of bonds, marking the latest Ivy League school to issue debt this year, and potentially providing signs of how it’s financially faring after months of turmoil over allegations of anti-semitism on campus.

The university is planning to borrow as much as US$750mil of taxable fixed-rate bonds the week of March 4 and US$900mil of tax-exempt bonds in April, according to a regulatory filing.

Harvard has come under scrutiny from lawmakers, students, alumni and donors in the wake of Hamas’ Oct 7 attack on Israel, resulting in the resignation this year of president Claudine Gay.

Some of its most prominent benefactors have signalled they won’t commit more money to the school such as billionaires Ken Griffin and Len Blavatnik, both alumni.

In addition, the school is facing inquiries in two Congressional committees, federal lawsuits and possible government action could take away financial support. Federally sponsored research comprised 11% of its operating revenues during the fiscal year that ended in June.

The bond offering documents from Harvard could outline additional details on the financial impact the school has incurred as a result.

The taxable bonds will be index-eligible in one or more benchmark maturities while the tax-exempt debt will be issued by the Massachusetts Development Finance Agency.

Harvard didn’t give specifics about how the taxable proceeds will be used but noted that those raised from the tax-exempt sale will finance capital projects and a potential refinancing.

Billionaire investor Bill Ackman, a critic of Harvard, posted on X that Harvard may not have expected a decline in donations from alumni.

Harvard is not borrowing for cash flow purposes, according to a person familiar with the matter.

Even if Harvard sees a significant drop in donations, it has liquidity to make up for a shortfall.

That’s a contrast with 2008 and 2009, when Harvard and other universities faced a squeeze because of the market crash. Harvard currently holds short-term investments of US$1.4bil, as well as a US$1.5bil line of credit, according to its most recent financial report.

The college has a pristine AAA credit rating.

Harvard has tapped Goldman Sachs & Co to lead the sales with Barclays Plc serving as co-senior manager, the filing says. A spokesperson for Barclays confirmed the bank’s role in the transaction. A spokesperson for Goldman declined to comment.

Harvard would mark the latest prestigious US college to tap the muni market for financing. Princeton University sold bonds earlier this month and is selling additional debt this week.

Harvard periodically sells bonds in both the corporate and muni bond market. In 2022, Harvard sold over US$200mil of muni bonds in part to construct a complex that’s home to the Harvard John A. Paulson School of Engineering and Applied Sciences. At the same time, the school also sold US$500mil of taxable bonds with a corporate identifier.

Muni yields have dropped after surging in 2023. That’s driven more municipalities to come to market with bonds for new capital projects or to refinance their debt. The yield on the 10-year AAA benchmark is about 2.5%, down from 3.6% in October 2023. — Bloomberg

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