Wall Street bond analysts shrugged off Harvard University’s lagging endowment returns, maintaining a AAA rating for the institution’s roughly $5 billion in debt.
In a report Thursday, S&P Global Ratings said its outlook for Harvard was stable, citing “significant cash and investments compared with outstanding debt.”
Harvard has been working to cut back and restructure its debt for the past several years, after peaking at $6.3 billion in 2011. It’s about to refinance $2.5 billion in outstanding bonds next week, or about half its total debt.
The university is on firmer financial footing than after the financial crisis, when it lost billions of dollars on its investments and borrowed heavily to get through that period.
Last week, however, Harvard’s $35.7 billion endowment reported a disappointing 2 percent loss on its investments for the year ended June 30, underperforming peers and broad market results. The value of the world’s largest endowment slid by nearly $2 billion.
Harvard president Drew Faust this week told the Harvard Crimson newspaper that such poor results would constrain the university’s budget and “our ability to do all kinds of things.” Income from the endowment provides more than one-third of Harvard’s annual operating budget.
In its report, S&P noted that Harvard Management Co., which oversees the endowment, is seeking a new chief executive. Charlene Butterfield, a director in the rating agency’s higher education group, said of the endowment’s results, “We believe that they have the size to weather that kind of volatility.”
S&P gives the university AAA ratings due to the high demand to attend the university, the caliber of its students, and the institution’s massive fundraising muscle.
Harvard received 37,307 undergraduate applications last year, S&P said, up 22 percent in five years. Harvard admitted fewer than 6 percent of those applicants.