Duke University buys back credit-crisis debt
By Bloomberg | May 6, 2011 4:06 pm
Duke University, Durham, N.C., bought back $500 million it borrowed amid the financial crisis when it sought to bolster its cash position.
Duke paid a premium to investors to redeem the taxable bonds before their scheduled maturity in 2014 and 2019. The university used $90 million of the money raised in January 2009 to subsidize operations and invested the rest in corporate securities, earning enough to cover interest costs, said Tallman Trask, an executive vice president.
“I had 2½ years of insurance,” Mr. Trask said in a telephone interview Thursday, referring to the availability of the bond proceeds. “I didn’t really need it, and in the end I didn’t pay anything for it.”
Duke paid almost 15% more than face value to redeem $250 million of its taxable bonds that were to mature in April 2019 and a 7.9% premium for $250 million that was to come due in April 2014, according to Bloomberg data. The school’s endowment gained 8.6% to $4.82 billion in the 12 months through June 2010, according to a report from the National Association of College and University Business Officers and the Commonfund Institute.
Duke joins Harvard University in beginning to buy back the debt, calling bonds before the final maturity dates, as their endowments rebound and they shift their investments into easier-to-sell assets, said John Nelson, managing director of higher-education ratings at Moody’s Investors Service.
Some of the wealthiest schools in the U.S. were forced to borrow money at the height of the credit crisis as their endowment returns plummeted and managers of their private equity investments accelerated demands for cash the universities had committed. At least 15, including Harvard and five other Ivy League colleges, sold a combined $7.2 billion of taxable bonds from December 2008 to November 2009, according to data compiled by Bloomberg.
“All of the universities that borrowed money are in a better position, in a more liquid position,” Mr. Nelson said. “They are more flush with cash and short-term investments.”
Harvard, with an endowment valued at $27.6 billion as of June, notified investors last month that it will redeem $300 million of $1.5 billion of taxable bonds it sold in December 2008. The AAA rated securities were set to mature in January 2014 and pay an annual interest rate of 5%. They will be redeemed on June 2.