In what investment analysts and third-party experts characterized as a routine transaction, Yale borrowed several hundred million dollars this July.
Over the summer, Yale raised $250 million in tax-exempt bonds, according to documents provided by Moody’s Investors Service. The proceeds from the bond issue will fund a range of capital projects on campus, including renovations to the Hall of Graduate Studies, Sterling Chemistry Laboratory and the Wright Nuclear Structure Laboratory, as well as the turbine replacement for the Central Power Plant and initial costs for the new Yale Biology Building, said Alexander Banker, a director of the Yale Investments Office.
“Yale’s robust financial reserves and history of extraordinary fundraising mitigate the risk of its debt structure,” Moody’s wrote in a June report. “In [fiscal] 2013, Yale’s expendable financial resources could repay debt and enable the University to operate for nearly five years without additional revenue.”
Under the leadership of University President Peter Salovey and Provost Benjamin Polak, Yale made progress toward balancing its budget in fiscal 2014, the report said. Yale’s consistent success in attracting top students, as well as its status as a leader in research, also contributed to a stable outlook for the University’s financial position, the report added.
While the report noted that the illiquid nature of many of Yale’s financial resources and a recent history of modest operating deficits posed slight concerns, the University still garnered a AAA credit rating from Moody’s, which is the firm’s highest ranking.
The $250 million in bonds was issued by the Connecticut Health and Educational Facilities Authority (CHEFA). Jeffrey Asher, CHEFA’s executive director, characterized the transaction as routine, adding that “it’s not an unusually large amount to borrow at one time.” By obtaining tax-exempt bonds, Asher said Yale saves money by financing through the CHEFA.
Both the Moody’s report and experts interviewed said the bonds carry minimal risk.
“The risks associated with this borrowing are minimal in the context of a University with a $21 billion endowment that repaid $750 million in taxable debt over the preceding 12 months,” Banker said in an email.
Though Yale’s official bond documents list the new residential colleges as a potential use of the proceeds from the bond sale, Banker said these funds will not necessarily go toward the new residential colleges. He emphasized that the new residential colleges currently remain 100 percent gift-funded, and that the new residential colleges were included in the documents to provide “legal flexibility.” If construction costs escalate, for example, funds from the bonds issuance could be used, he said.
“While not planned or considered, this possibility had to be reflected in the bond documents,” he said.
William Jarvis ’77, managing director of the Commonfund Institute, said construction costs could easily rise over the coming years. He characterized the bond issue as a prudent move, noting it is often wise for big capital projects, such as the construction of the two new residential colleges, to have contingency funds.
“You’ve got something that’s going to be there for 100 to 200 years, and you just don’t want to screw up,” Jarvis said.
According to the report, Yale has $3.4 billion of Moody’s-rated outstanding debt.