Sunday, May 19, 2024

"Harvard Bond Offering Raises Less Money Than Expected"

I would have assumed that Harvard was a pretty good credit and that their paper would be in demand but maybe not.

From Ira Stoll's The Editors, May 9:

Tax-exempt Massachusetts bond sale underperforms announced ambitions

Harvard’s already had a president resign under pressure and seen applications dip amid a crisis over antisemitism at the university. Now, financial markets are imposing their own price, with the university coming up short of its goals in a scramble to borrow money.

In a February 26 regulatory filing, Harvard said it would raise “up to approximately $900 million of tax-exempt fixed rate bonds.”  A March 6 article in the Harvard alumni magazine described the tax-exempt bond offering as “perhaps $900 million” and said the size would depend on “market conditions.” A March 12, 2024 public hearing before the Massachusetts Development Finance Agency, at which I testified, mentioned $2 billion in state bonds for Harvard. That $2 billion sum was approved at a March 14, 2024 board meeting of the Massachusetts Development Finance Agency.

Yet the investor appetite for Massachusetts tax-exempt bonds backed by Harvard apparently turns out to be on the low side of what Harvard was aiming for, at least at the non-distressed or non-“junk” yields that Harvard is offering to pay lenders. A document posted with no fanfare on Harvard’s bondholder information website this week after I inquired with the Massachusetts Development Finance Agency about the fate of the bond offering lists the amount of the offering as $734,995,000. That’s a mere 36.7 percent of the $2 billion that the state approved, and it falls more than $165 million short of the $900 million number touted in the regulatory filing and the alumni magazine article.

Even the $734,995,000 sum overstates the amount of new money available to Harvard as a result of the bond offering. Of that, $356 million is being used to buy other Harvard bonds that were issued in 2016. An undisclosed additional amount is also being used to refinance commercial paper—short-term debt. There’s also a $120 million “premium.”

All in, the bond financing document says, Harvard’s “total outstanding principal amount of indebtedness” at the end of the deal will be “approximately $6.8 billion,” up from “approximately $5.9 billion” on June 30, 2023. Harvard also issued $750 million in taxable bonds on March 12, 2024, so the additional principal attributable to the new tax-exempt bond offering doesn’t seem to amount to that much, at least by Harvard standards.

Harvard says the capital projects the tax-exempt bonds will finance include “renovations to undergraduate student housing,” construction of new Harvard affiliate housing in Boston’s Allston neighborhood, and renovation of an administrative building, Gordon Hall, at Harvard Medical School....


Mr. Stoll used to run one of those college-affiliated publications, in this case Education Next at Harvard's Kennedy School. In his student days he was editor of the Harvard Crimson.