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John Harvard's Journal

Back to the Bond Market

January-February 2011

The University issued $601 million of tax-exempt bonds and $300 million of taxable bonds in early November. Because the former issues refinance existing debt and long-term borrowing under Harvard’s commercial-paper program, total debt outstanding rose to $6.6 billion from $6.3 billion at the end of the last fiscal year (June 30). The refinancing may enable the University to reduce higher rates incurred earlier, to fix the rates on variable-rate obligations that could rise in the future, or both. Harvard initially filed to sell about $741 million in the refinancing, but the market deteriorated by the time the offering was made. Interest expense increased 26 percent, to $265 million, during fiscal 2010.

The $300-million sale of new bonds will finance various capital projects, including the wholesale reconstruction of the Fogg Art Museum. It is the first such financing since Harvard borrowed $480 million last January, in part to pay for construction of Harvard Law School’s Northwest Corner project. The two projects, with a combined cost estimated at more than $600 million, each attracted major gifts, but required external financing as well. They are, presumably, among the last projects of their size for which the University intends to resort to significant debt financing.

Moody’s Investors Service rated both bond offerings Aaa. That indicates that Harvard’s financial adjustments since the sharp decline in the value of the endowment, and other losses, in 2008 have enabled it to retain its top-tier credit rating.

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