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MIT Issues $250 Million in New Bonds

By Nathan Collins

EDITOR IN CHIEF

MIT has issued about $205 million in bonds to fund continuing construction and to refinance older bond issues, said MIT Treasurer Allan S. Bufferd ’59.

The bonds bring MIT’s total debt to about $915 million, more than three times the $300 million in debt MIT had before beginning its current construction push, Bufferd said. MIT’s total assets stood at about $7 billion at the end of last summer, according to the 2002 Treasurer’s Report.

The increasing debt “is a concern,” he said, though “I think concern is too strong a word.”

Taking on additional debt “has some effect on your acceptability” in the bond market, and could mean MIT will have to pay higher interest rates on future bonds. Bufferd said that he hoped to maintain MIT’s generally high bond rating. As with MIT’s last offering, the latest bonds are rated triple-A by Moody’s Investor Service, a financial research firm. Such ratings indicate the likelihood that the issuer will be able to repay the value of the bond plus interest.

Bonds are generally paid back somewhat incrementally. Each issue often comprises bonds that take two to thirty years to mature, Bufferd said, so MIT is paying back its debt all the time.

Bufferd said that the most recent bond issue “was very well received” in the market.

Bonds will fund construction

The bonds, known as Series L, are “part of the continuing financing of the construction program” and will fund new buildings for the Brain and Cognitive Sciences department as well as current construction projects. MIT has had an extensive building program in the last several years, including the Stata Center, the Zesiger Sports and Fitness Center, and renovations in the Chemistry building.

MIT “is committed to finishing all those projects that are started,” Bufferd said. There are “no other significant financing plans” in the works. MIT is likely to sell a similar amount of bonds next winter or spring, he said, but few are expected after that.

Bufferd added that the bond issues are intentionally spread out. “Why borrow money before you need it?” Bufferd said.

The amount and timing of future bond issues will depend on whether money in the form of gifts comes in and whether new projects are approved, Bufferd said.

$55 million goes to refinancing

Roughly $55 million will go toward paying off, or calling, older Series H bonds in a procedure similar to refinancing a mortgage, Bufferd said. Though some of the bonds are not yet mature, MIT can pay them off early. July 1, 2003, ten years after the Series H bonds were issued, “is the first opportunity we had to refinance by the terms of the bonds,” and MIT will call the higher interest Series H bonds then, Bufferd said. “With the very favorable rate conditions ... we chose this as an opportunity to refinance.”

The bonds are alphabetically ordered; MIT offered the Series A bonds about thirty years ago, Bufferd said.