When Howard University completes a $215 million bond sale this week, it will become the first historically Black college to join in the unprecedented borrowing binge that has swept over U.S. markets.
American universities as a whole have been active participants in this frenzy, with more than 100 of them selling $27 billion of bonds this year. But historically Black colleges and universities, known as HBCUs, have accounted for only $147 million, or 0.5%, of that amount. And that came from a deal that Howard, which was founded in Washington in 1867, did in February. The country's 100 other HBCUs have been left out.
By many measures, the cards are stacked against Black institutions. They tend to serve lower-income students, which makes their balance sheets less robust and their endowments smaller — the sorts of things that may limit prospective bond buyers. No Black institution cracks the top-100 richest schools in the country and HBCUs average $15,000 a student in endowment funds, compared to $410,000 for similar non-HBCU schools, according to a 2018 U.S. Government Accountability Office report.
It is only now, months into the torrid bond-market rebound orchestrated by the Federal Reserve, that Howard's Chief Financial Officer Michael Masch is confident that investors are ready to buy the school's debt once again. Mr. Masch was forced to put a planned sale on hold in March, when the pandemic briefly caused the bond market to seize up, and has been waiting for the right moment to revive it ever since.
"There was just no market to go to," Mr. Masch said in an interview. "We just folded our tents and faded back into the night and waited until there would be a settling down of the credit markets."
The sale also marks the first debt offering by an HBCU since the police killing of George Floyd on May 25 sparked widespread protests and a broader national conversation about racism and systemic inequality in the U.S.
The heightened focus on such issues may lure in more buyers than normal and help push down the interest rate that Howard has to pay, bond analysts say, but that will ultimately do little to address the financial difficulties that HBCUs face.
Serving underrepresented groups means that Black institutions have to chip in more for tuition for low-income students than peers, said Emily Wadhwani, an analyst for Fitch Ratings. Their endowments are much smaller as well, with the median endowment coming in at half that of a comparable predominantly white school, according to the 2018 GAO report. The combined endowment of all 101 HBCUs totals about $3.86 billion, a tenth of Harvard University's endowment, according to an estimate by the United Negro College Fund.