University May Refinance Bond Issue

Harvard will likely refinance up to $160 million of a 1982 bond issue as soon as interest rates drop, officials said this week.

As soon as interest rates for 'AAA' 30-year tax-exempt bonds drop from their current 9.5 percent level to below 9 percent. Harvard may refinance some portion of the $229 million original issue, which paid for the House and science laboratory renovations and major projects at the Business and Medical Schools.

Financial Vice President Thomas O'Brien said that Harvard wants to "lock in" a fixed 9 percent rate for the bonds to safeguard the University from fluctuations in the bond market.

The 1982 bond issue, known as series E. Carries--in a very limited sense-a variable rate, because Harvard can call in the bonds at certain specified time periods, pay off bondholders, and then borrow the money again at a new interest rate.

But the bondholders can also cash in, or 'put,' the bonds at certain times when they can take advantage of the market and collect a premium price from Harvard.

O'Brien said that by guaranteeing a stable 9 percent rate for the lifetime of the bonds. Harvard will be "locking in what would be a relatively lower long-term rate" than if it were susceptible to having the bonds cashed in when interest rates are high.

However, unlike what are normally called variable rate bonds. Harvard cannot arbitrarily reset the bonds' interest rate at the end of each year.

Series E includes three subgroupings; $69 million of bonds due in the year 2010, $80 million of 2011 bonds, and $80 million of 2012 bonds. Harvard may refinance any or all of the 2011 and 2012 bonds.

Cash Up Front

Holders of the 2010 issue became eligible to cash in their bonds in December, 1983, and about $28 million of that $69 million was put to Harvard.

The 2011 issue and 2012 issue will become redeemable in December. 1985, and December, 1987, respectively. Harvard sold three issues making up Series E in December 1982. The 2010 bonds pay 5 3/4 percent interest annually and the 2011 and 2012 issues bear 6 3/4 and 7 1/4 percent respectively.