Duke University Buys Back Debt, Mirroring Other University Endowments

(May 9, 2011) — Duke University has joined Harvard in buying back credit-crisis debt.

University endowments around the country are now buying back debt that was sold during the credit crisis. Data compiled by Bloomberg has shown that at least 15 university endowments sold a total of $7.2 billion of taxable bonds from December 2008 to November 2009.

As the 15th largest US university endowment, Duke University has bought back the $500 million it borrowed during the financial crisis. According to Bloomberg, the Durham, North Carolina-based university paid a premium to investors to redeem the taxable bonds before they were set to mature in 2014 and 2019.

According to KC Connors of consultancy NEPC, the endowment and foundation space is taking advantage of stronger markets to reassess its liquidity needs. “With high levels of debt on the books, endowments often face investment restrictions,” she told aiCIO. “And with the rise that we’ve seen in the market and liquidity in the market, it doesn’t make sense to pay such high interest rates with large quantities of debt. The only reason endowment funds would want to keep debt is if they want to ensure they have enough liquidity in their portfolios,” she said, noting that with return of liquidity starting in the latter half of 2009, that concern is subsiding. “Now, with liquidity returning to the marketplace, there’s enough of a recovery where looming liquidity fears are put aside and thus funds are thinking longer term.”

Meanwhile, since a reduction in debt would permit Harvard University to have greater flexibility to make new investments, the endowment is planning to buy back $300 million of bonds that it sold during the financial crisis. During the worst of the crisis, Harvard reportedly sold $1.5 billion in taxable bonds and $1 billion of tax-exempt debt to bolster its cash holdings.