Colleges Join Students in Piling On Debt

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A rally in the tax-free municipal debt market is attracting a few new issuers this year. A report at Bloomberg News notes that Stanford University and the University of Chicago are both planning to issue new tax-free bonds through their states’ financial authorities.

Stanford will issue $240 million in tax-free bonds, while the University of Chicago will sell $150 million in tax-exempt debt. Chicago also plans to offer another $200 million in taxable bonds.

Harvard University has made a preliminary announcement that it will issue $402 million in taxable bonds next week according to a report at Reuters. The university will sell $50 million in 10-year bonds, $100 million in 18-year bonds, and $252 million in 24-year bonds.

A AAA-rated, 10-year municipal bond returned 1.75% earlier this week, compared to a yield of just 1.69% on a 10-year Treasury note. The difference on returns for 30-year debt are roughly the same. Stanford’s debt is AAA-rated by all three major ratings services and Chicago’s debt is one notch lower at two of the agencies and two notches lower at the other. Probably due to the lack of a big-time football program.

According to the Institute of Education Sciences, Harvard’s endowment at the end of last August 2011 totaled $31.73 billion, while Stanford’s pile came to $16.5 billion and Chicago’s reached $6.5 billion.