Word: rates
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After the terminations, Harvard now has $3.1 billion of debt subject to interest rate swap agreements...
Harvard entered into interest rate swap agreements—which are used to hedge against rising interest rates—in 2004, when it seemed that interest rates had reached favorable lows and that locking in those rates would help the University finance its mammoth, long-term expansion into Allston. But the agreements backfired this past year when the global financial crisis pushed interest rates to unprecedented lows, thereby decimating the value of the swaps...
...losses associated with the swaps, decided to post $500 million in collateral this past year to terminate agreements on $1.1 billion of its debt. In addition, the University will pay another $425 million over the next 30 to 40 years for new “offsetting” interest rate swaps, which will essentially negate the effect of the original swaps on $764 million of its debt...
Many other universities have similar interest rate swap agreements in effect, but not to the magnitude of Harvard’s arrangements. Rothenberg said that this was because Allston presented Harvard with a “unique opportunity” to aggressively expand...
...report said “generated significant positive investment results” in the past. But this year, that strategy backfired, dragging the value of the GOA down from $6.6 billion last year to $3.7 billion this year. Part of that decline reflects the payments made to terminate interest rate swap agreements...