Harvard selling bonds to pay debt

$2.5 billion also targeted at swap

Harvard University, the world's richest college, is raising as much as $2.5 billion from sales of taxable and nontaxable bonds to pay debt and terminate an interest-rate swap agreement.

Harvard sold $1.5 billion in taxable bonds, according to data compiled by Bloomberg, and the university plans an offering of $1 billion in tax-exempt securities, Standard & Poor's said. The long-term bonds, with maturities as long as 30 years, will replace commercial paper sold to finance the school's "very ambitious" capital plan, and end a swap, S&P said in a report yesterday.

S&P, which is based in New York, rates Harvard AAA and said its only credit concern was if the school issued "significant additional debt" amid "a declining investment market." Marc Savaria, the analyst in Boston who wrote the report, didn't return calls.

John Longbrake, a Harvard spokesman, confirmed the school will sell at least $600 million in tax-exempt securities, declining to comment further. The school is expanding its campus in Allston across the Charles River, and Longbrake declined to estimate the expected cost.

Harvard's endowment decreased 22 percent, or $8 billion, in the first four months of fiscal 2009, putting it on course for its worst performance in at least four decades. The fund, the world's largest college endowment, was $36.9 billion on June 30 after gaining 8.6 percent in fiscal 2008. The worst annual return that Harvard has recorded in at least 40 years was a loss of 12.2 percent in 1974.

The taxable debt was split equally between 5-, 10-, and 30-year securities, with yields 335 to 337.5 basis points more than US Treasuries of similar maturity, Bloomberg data show. JPMorgan Chase & Co., Goldman Sachs Group Inc., and Morgan Stanley managed the sale.

Harvard also will price as much as $1 billion in tax-exempt debt next week, according to S&P and Bloomberg data, with New York-based JPMorgan the underwriter and the Massachusetts Health and Educational Facilities Authority, the state agency serving as the conduit.

S&P didn't provide details on the cost of terminating the interest-rate swap and the counterparty in the deal.