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

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

The size of its endowment assets is only one consideration. Many -- probably most -- major donations to a school's endowment are in the form of directed contributions that are designed to fulfill a specific purpose in perpetuity. The university can't just tap those funds for its regular operations.

If a university takes a $50 million gift that was supposed to be used to establish and fund a new department, and use it instead to pay lucrative salaries to administrators, then the donor's legal representatives will have no trouble clawing that money back.

Correct - the old saw of “Well, if you need money, just sell some of the assets” having often been bad advice in the past (along the lines of ‘don’t eat the seed corn, idiot’) now has the giant added problem of the fact that under current economic conditions there’s nobody that can or will buy them and it is only going to get worse. Know someone in Australia who’s the heir to a huge fortune on paper - but it’s all tied up in real estate that cannot be sold and right now is not generating a lot of income due to economic and other (post-COVID) reasons. Lots of fun with their minimal cash flow at the current time.

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