Harvard Attracts Investors, Selling $750 Million in Taxable Bonds

After two credit rating agencies affirmed the University’s AAA rating, Harvard sold $750 million in taxable bonds at an advantageous rate, demonstrating strong investor faith in the school despite weathering a series of scandals last fall.

Priced at only 47 basis points above 10-year U.S. Treasury yields, the debt carries one of the tightest spreads of an 11-year investment grade bond seen since 2009. As corporate bonds and risk-free rates have continued to fall, the low credit spread represents a favorable opportunity to enter the bond market.

The bonds experienced a rally in secondary trading markets on Wednesday morning, indicating continued investor confidence in Harvard.

Harvard revealed a $1.65 billion debt financing plan with Goldman Sachs & Co. as bookrunner in a filing last week, which came before its $750 million taxable bonds sale. The University is expected to enter the market for $900 million in tax-exempt bonds in several weeks.

The recent resignation of Claudine Gay and the withdrawal of prominent donors spurred speculation that there might not be much appetite for Harvard’s debt. But the success of the deal shrugged off concerns investors might have had about donor turmoil at Harvard.

The University’s $50.7 billion endowment is almost 10 times that of its outstanding debt, making Harvard one of the most risk-free investments.

“It should not surprise anyone that there was plenty of demand for this bond issuance, and that Harvard would be able to get a highly attractive rate on the debt,” Harvard Business School professor Luis M. Viceira wrote in an emailed statement. “Harvard is one of a small number of entities in the world with a AAA credit rating, and it has relatively low debt levels on its balance sheet.”

“Although perhaps there might be some operating deficits in the horizon, I expect those to be short lived as policies in place and in development address their root causes,” he added. “The likelihood that this debt would ever go into default seems extremely close to zero to me.”

Like other wealthy peer institutions, Harvard faces “considerable exposure” to governance scrutiny, but despite the period of leadership transition, Harvard’s robust institutional governance framework has provided “ample capacity” to manage this period without impacting credit quality, according to Moody’s affirmation of Harvard’s AAA rating.

Harvard spokesperson Lindsey Shepardson declined to comment for this article.

Economics professor David I. Laibson ’88 also expressed confidence in Harvard’s current financial state.

“Harvard University has a diversified endowment, spends sustainably from that endowment, borrows only modest amounts relative to the value of the endowment, and has the wisdom to cut expenses when crises occur — for example, following the 2007-2009 global financial crisis,” Laibson wrote in an emailed statement.

“These factors give Harvard University ironclad reliability as a borrower,” he wrote.

—Staff writer Sidney K. Lee can be reached at sidney.lee@thecrimson.com. Follow her on Twitter @sidneyklee.

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