Harvard suddenly ‘exploring’ issuing $1.65 billion in bonds, suggesting donor falloff is

The systemic institutional antisemitism exposed by Rep. Elise Stefanik’s grilling of former Harvard President Gay is turning out to be a catastrophe for the oldest and formerly most prestigious university in the United States. The backlash of donors withholding funds appears to have created a cash flow crisis, forcing the university into the bond market at a time when interest rates are five times higher than the last time it issued bonds – to cover building projects — in 2022. Kudos to Sidney K. Lee and Thomas J. Mete of the student-run Harvard Crimson for breaking this important story:

Harvard announced it is exploring a $1.65 billion bonds sale in an attempt to raise capital through debt financing despite poor macroeconomic conditions, a move that comes after the University faced months of donor backlash.

The potential ten-figure bond sale, revealed in a University filing on Monday, would see Harvard’s debt reach $7.85 billion — higher than any point in recent history, including during the 2008 financial crisis.

The planned sale, which would be spearheaded by Goldman Sachs & Co. and Barclays Capital Inc., is unprecedented given its magnitude — even for an institution of Harvard’s size — but remains within the normal guidelines of financial management for corporations with annual revenues that exceed $5 billion.

A University spokesperson declined to comment on the filing.

The article reveals some very interesting data highlighting the significance of this move. It states that Harvard relies on philanthropy for 45% of its annual revenue, which means that an unanticipated falloff in donations could significantly diminish cash flow from the levels anticipated in financial forecasts prepared before the public reckoning and resulting donor reaction.

Yes, Harvard is rich, with an endowment in the neighborhood of $50 billion, but much of this wealth is committed to investments which are of varying liquidity and may be costly to sell. The various faculties of the university (Law School, Business School, Faculty of Arts & Sciences, et al.) control substantial portions of this endowment and so they are not readily available to university administration.  Moreover, the income from that endowment is already committed to finance ongoing financial obligations, such as the salaries for DEI bureaucrats, so selling assets to make up for the falloff in donations creates longer term problems.

Harvard’s most recent bonds were issued to finance new buildings and other capital expenditures with long term payoffs, not to cover cash flow shortfalls:

The 2022 capital raising effort was targeted to complete the University’s financing of major campus projects, including the Science and Engineering Complex and the College Housing Renewal. Monday’s filing provided no details about upcoming campus projects, leading to speculation that the debt raising effort was in response to a dropoff in donations.

Moreover, the 2022 bonds were issued in a favorable interest rate environment:

When the University issued $750 million in bonds during the second quarter of 2022 the Federal Funds Rate sat at 100 basis points, today the Federal Reserve is expected to hold steady in the range of 525 and 550 basis points.

Wall Street anticipates the Federal Reserve will cut interest rates this year, which means that if the need for funds were not so urgent, it would be better to postpone borrowing.

The bigger portion of the borrowing, however, apparently is for buildings and facilities, which would be tax-free for investors (meaning that Harvard would pay a lower interest rate).

The proposed debt financing will be sold through two bond series: $750 million of taxable fixed rate bonds issued by the Harvard Corporation, and $900 million tax-exempt fixed rate bonds issued by the Massachusetts Development Finance Agency.

However, the $750 million in more costly bonds that do not qualify for tax-free interest income would more likely be applied to expenditures that were anticipated to be covered by the cash flow Harvard’s financial planners anticipated would be coming their way.

Harvard’s most recent “Financial Overview From the Vice President for Finance and the Treasurer” issued 5 months ago indicates that in fiscal year 2023, “The University generated an operating surplus of $186 million or 3% of revenue,” which would indicate that total revenues were just over $6 billion, and that of the 45% derived from philanthropy, “Distributions from the endowment totaled $2.2 billion or 37% of total revenue for the year. An additional 8% of revenue came in the form of current gifts.” Eight percent of the revenues would indicate that current gifts in FY 2023 were just over $480 million.

So, the non-tax-exempt bonds in the amount of $750 million must considerably exceed any possible falloff in donations. What else could account for the apparently unplanned need for funds? The Financial Overview offers a clue:

[T]he 2.9% return on the endowment this year is below our long-term target return of 8%.

Note that this 2023 return is probably lower than the interest cost of the bonds Harvard may issue.

It is impossible for me to be specific about the reasons for the bond issue without more information, but (former) mega-donor Bill Ackman, quoted in the Crimson, who probably is far more familiar with university finances than I, is not shy:

Hedge fund manager Bill A. Ackman ’88, one of Harvard’s fiercest critics since Oct. 7, claimed that the recent filing is a result of a decline in alumni donations that Harvard financial managers did not predict in their forecasts.

“The model likely did not predict a decline in liquidity events from private equity, real estate, and venture capital and the dramatic decline in donations,” Ackman wrote on X.

“That is likely why Harvard announced this recent bond offering, which is being done in a substantially higher interest rate environment than where the funds could have been raised a couple of years ago,” he added.

One thing is clear: Harvard is paying a very high price for allowing DEI and associated Jew-hatred to flourish and embed itself in its personnel and policies. The ultimate responsibility lies with the members of the Harvard Corporation, who hired former president Gay and allowed antisemitism to flourish.

 Harvard Coat of Arms via Wikipedia