Word: bonding
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...purpose of the bond issue--the largest ever managed under the auspices of the state's Health and Educational Facilities Authority (HEFA)--is "to stabilize the cost of money" for the Universities various department carrying on major construction or renovation projects, explained College Treasurer George Putnam...
That is, the interest the University is paying out to the bond buyers--slightly below the 7 percent averaged out for all issues is less than Harvard estimates the endowment will earn with the extra principal...
...fact that income from the bonds is non taxable is what allows bond-buyers to ignore the relatively low payrolls from the Harvard issues Harvard's high rating as a borrower triple. A from the credit raters also helps assure buyers, as does the complicated nature of the debt-offerings--known as "put" bonds...
That means that after a certain period of time--which depends on the type of bond bought--a buyer is allowed to have the bond prematurely redeemed, at a price equal to the principal and interest thus accrued, and the University is allowed to change the rate of interest it pays out on the issue. "Both the seller and buyer are protected against change's in interest rate," explained Putnum, pointing out that with the uncertain nature of interest rates, investors are increasingly unwilling "to stick their necks out to buy bonds...
Other factors also played somewhat less of a factor in going ahead with the sale. For one thing, financial officers said, there has been some rumbling in recent years to curb the tax-exempts status of universities' bond-welling. The fear that "tax-exempt borrowing procedures would be withdrawn," sometime, was certainly weighed in the University's decision, O'Brien said But he added that Harvard "wanted to make sure that this [option] wasn't precluded...