Earlier this week, MIT priced an advance refunding of some $454 million of outstanding tax-exempt bonds that the Institute sold in 2008 and 2009. The transaction, which will be completed on Monday, allows MIT to “refinance” the debt from these earlier bond sales to take advantage of today’s low interest rates.
As part of the transaction, MIT issued $522 million in taxable debt, maturing in 2019, 2026, and 2038 and yielding 3.85 percent. However, the Institute’s overall debt load will only increase by about $69 million, because the 2008 and 2009 bonds will now come off its balance sheet.
The advance refunding affects two tax-exempt Series O and Series N bond issuances that MIT made in August 2008 and January 2009, respectively. Those issuances raised roughly $600 million that was used to finance construction of various capital projects, including the Koch Institute for Integrative Cancer Research, the MIT Media Lab’s Building E14, upgrades along Vassar Street, and other projects.
Of the initial $592 million par amount of debt issued, $50 million matured in July, and an additional $88 million will mature in 2016. The advance refunding affects the remaining $454 million, which was set to mature on four different dates between 2019 and 2038.
Under the terms of the 2008 and 2009 bond issuances, the Institute retained the right to call, or repay, those outstanding bonds early, in 2017 and 2018. The proceeds from this week’s transaction will go into a trust that will be used to pay off the remaining Series N and O bonds in 2017 and 2018, respectively.
Bond financing is a type of long-term borrowing frequently used to raise money for long-lived infrastructure assets. Investors purchase the bonds from the issuer, in this case MIT, which commits to making periodic interest payments and repaying the original principal over time or on a certain date. Bond investors typically include individuals, pension plans, mutual funds, and insurers.