By Jeremy R. Cooke and Michael McDonald Feb. 10 (Bloomberg) — Yale University, the top-rated Ivy League school founded in 1701, won lower 15-year tax-exempt yields than Harvard University, also ranked AAA, thanks in part to demand from its home state of Connecticut. New Haven-based Yale, whose endowment ranks second only to Harvard in the U.S., sold bonds due in July 2025 at a price to yield 3.35 percent yesterday while the University of Michigan in Ann Arbor, also rated AAA, drew 3.59 percent on similar debt. Harvard, based in Cambridge, Massachusetts, got 3.46 percent last month on securities that last traded on Feb. 4 at 3.41 percent. All of the debt can be bought back in eight to 10 years. Connecticut is wealthier per capita than Massachusetts and Michigan and its higher income tax rates help boost demand for tax-free municipal bonds in a state where supply has been relatively sparse, according to Fred Yosca , head of fixed-income trading at BNY Mellon Capital Markets LLC in New York. “Not only is it an Ivy League credit, it is Connecticut tax-exempt,” Yosca said. “There’s never any Connecticut paper around anymore.” Fixed-rate municipal sales by Connecticut issuers fell 24 percent to $352 million this year through last week, while offerings in Massachusetts rose 70 percent to $1.28 billion in the same period, according to data compiled by Bloomberg. Michigan muni deals fell 45 percent to $332 million during the first five weeks of 2010, the data show. Income, Taxes Connecticut has the highest personal income per capita at $54,117, based on 2007 data from the U.S. Census Bureau, and a top income tax rate of 6.5 percent, compared with 5.3 percent in Massachusetts and 4.35 percent in Michigan. Yale, which cut capital spending 60 percent after endowment losses, sold $530.2 million of tax-exempt bonds and wrapped up the offering a day sooner than planned. Underwriters led by Barclays Plc handled the deal, which was issued through Connecticut’s Health and Educational Facilities Authority. The private nonprofit university found enough demand to raise the price and cut the yield on the $80 million in 15-year bonds by four basis points from 3.39 percent. Yale also sold $150 million of 30-year bonds priced to yield 4.24 percent. The balance of the transaction was 39-year bonds with so- called mandatory tender provisions that allow Yale to buy them back and change the rates. Investors in $150 million were offered a 1.05 percent yield through 2013, and buyers of another $150 million get 1.77 percent through 2015. Big Endowments “Universities with big endowments have been trading very well,” Yosca said. “They’re still perceived to be blue-chip credits.” Michigan, the state’s oldest university, sold $184.2 million of AAA tax-exempt bonds yesterday through a round of competitive bidding among investment banks won by Bank of America Merrill Lynch . Ten-year bonds had a yield of 3.01 percent. Yale is using most of the proceeds from its deal to finish campus construction projects as part of a $600 million capital program for the year ending June 30, a record level of spending. The university will cut its capital program to $250 million next year. The school’s endowment fell to $16.3 billion from $22.9 billion in the 12 months ended June 30. Yale will delay as much as $2 billion in capital projects over the next five years, university President Richard Levin said in a letter a year ago. Tom Conroy , a Yale spokesman, confirmed the capital spending cuts this week and declined further comment. Suspended Work Harvard suspended work early this year on a $1 billion science center after the value of its endowment fell to about $26 billion in the 12 months ended June 30, from a peak of $36.9 billion in 2008. The university may cut its annual capital spending in half to $500 million, according to a 2009 report from Moody’s Investors Service. Higher-education endowments lost on average 18.7 percent in the year ended June 30, according to the National Association of College and University Business Officers . The losses are forcing the institutions to rein in building programs after boosting long-term debt by 54 percent in fiscal 2009, according to a survey of 842 of the institutions released Jan. 28. The highest rated tax-exempt university bonds are sometimes so popular they come to market at yields less than those on some top-rated state and local debt. Georgia bonds rated AAA, due in March 2025 and callable in 2019, traded yesterday at a price to yield 3.47 percent, Municipal Securities Rulemaking Board data show. Slower Pace Yale may also have benefited from expectations for a slower pace of bond sales in coming weeks than when Harvard borrowed, said Dexter Torres , head trader at fixed-income manager Samson Capital Advisors in New York. The Bloomberg Municipal 30-Day Visible Supply Index fell to $8.6 billion from $14.1 billion Jan. 13. “There was a heavier supply calendar the week that the Harvard deal came, so that deal had more competition,” Ashton Goodfield , head of muni trading at DWS Investments in Boston, said in an e-mail. “With Yale, the 15-year term sold at narrower spreads than the 30-year term. This reflects the strong interest for high-quality names in the intermediate part of the curve, from both retail and institutional buyers.” Following are descriptions of pending sales of municipal debt in the U.S. VIRGINIA PUBLIC BUILDING AUTHORITY plans to sell $317.2 million in revenue bonds through competitive bidding as soon as today to help finance repair, renovation and construction projects at state agencies. Securities due through 2015 will be tax-exempt and those due from 2016 through 2030 will be taxable Build America Bonds. The debt is rated AA+ by Fitch and S&P, the second-highest of 10 investment grades. (Updated Feb. 10) CALIFORNIA’S EAST BAY MUNICIPAL UTILITY DISTRICT, which provides water to 1.3 million customers in an area around Berkeley and Oakland east of San Francisco Bay, intends to market $400 million of taxable, federally subsidized Build America Bonds through Morgan Stanley as soon as this week to fund construction projects. The district’s water system subordinated revenue bonds are rated AA by Fitch, Aa2 by Moody’s and AAA by S&P. (Updated Feb. 10) LOS ANGELES UNIFIED SCHOOL DISTRICT , the second largest in the U.S. after New York City, plans to sell about $1.75 billion of voter-approved general obligation bonds on Feb. 17 and 18. The offering will comprise a mix of tax-exempt and taxable securities, some of which will be designated Build America Bonds and eligible for 35 percent federal interest subsidies. The money raised will help fund the nation’s largest school-building program and refinance debt. Banks led by Citigroup Inc., Barclays Plc, Goldman Sachs Group Inc. and Morgan Stanley will underwrite the deal. The bonds, backed by property taxes collected by Los Angeles County, are rated Aa3 by Moody’s and AA- by S&P. (Updated Feb. 10) UNIVERSITY OF PITTSBURGH MEDICAL CENTER, the largest employer in western Pennsylvania, intends to offer $720 million of fixed-rate bonds next week as part of a $1.1 billion plan to reduce the amount of its debt with variable interest to 20 percent from 30 percent. Underwriters led by Bank of America Merrill Lynch and Allegheny County’s Hospital Development Authority will market a $400 million UPMC issue, and PNC Financial Services Group Inc. and Pennsylvania’s Higher Educational Facilities Authority will handle $320 million. S&P rates the Pittsburgh-based medical center A+ and Fitch assigned it AA-. (Added Feb. 10) KENTUCKY’S OWENSBORO MEDICAL HEALTH SYSTEM, the largest employer in Daviess County, plans to sell about $545 million of tax-exempt bonds through underwriters led by Bank of America Merrill Lynch as soon as this month. The money raised will finance a 447-bed replacement hospital and refinance existing obligations. (Updated Feb. 9) NORTH CAROLINA BAPTIST HOSPITAL, the academic medical center for Wake Forest University in Winston-Salem, plans to refinance all of its debt by selling $330 million of fixed-rate, tax-exempt bonds next week. Underwriters led by Morgan Stanley and the North Carolina Medical Care Commission are arranging the deal, which will redeem variable-rate demand obligations issued in 1992, 1996, 2000 and 2009. Moody’s rates the bonds Aa3, and S&P assigns its AA-. (Added Feb. 10) To contact the reporters on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net ; Michael McDonald in Boston at mmcdonald10@bloomberg.net .
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Yale Beats Harvard Selling Bonds in Rush for Scarce Connecticut Muni Debt
