Tufts University recently refinanced about $218 million in debt at a favorable rate that will save some $2 million annually in interest payments. The refinancing comes at a time when interest rates are rising nationally, but the university's strong bond rating helped keep the borrowing costs down for the university.

"These are real, recurring savings that can be reinvested in support of our academic mission and priorities," says Tom Malone, vice president for finance and treasurer.

Standard & Poor's Global ranked Tufts credit at AA-, "a strong investment-grade rating," says Malone. It has held that rating since 2004. S&P's highest rating is AAA.

Bond ratings are independent assessments of organizations' creditworthiness-essentially how confident a ratings agency is that the borrower has the financial capacity to meet its obligations.

"There is a rough analogy to an individual's credit score, although the analysis of an institution like Tufts is much more extensive," says Malone. "Rating agencies examine our financial statements, liquidity, debt, operating performance, endowment, and other financial measures. They also look at the university's broader position-student demand, enrollment, selectivity, the diversity of our academic programs and revenue sources, research activity, fundraising, and management."

Tufts is also rated by Moody's, another ratings agency. It gives the university an Aa3, a strong investment-grade rating, which reflects an assessment that Tufts has substantial capacity to meet its financial obligations.

The new Tufts bonds were priced at a 3.8% yield, "a better rate than we were paying on the variable-rate debt we refinanced," Malone says. "Investor orders were also greater than the amount of bonds available, which tells us that the market viewed Tufts as an attractive investment."

The new bonds feature an 11-year fixed-rate, tax-exempt structure. "That reduces our interest expense, simplifies the debt portfolio, and gives us certainty about the cost of this debt over the next 11 years," says Malone.

Universities like Tufts borrow money to make investments "that will benefit students, faculty, and researchers for decades, including academic buildings, laboratories, student housing, and other major infrastructure," Malone says. "It often makes sense to finance some of those investments over a similarly long period rather than require today's students, donors, or operating budget to pay the entire cost upfront."

While the university has a substantial endowment, Malone notes, much of it is restricted by donors for specific purposes, so borrowing makes sense. The idea is to use debt responsibly, "maintain the capacity to repay it, and determine the right mix of borrowing, philanthropy, operating funds, and other resources for each investment."

Malone notes that the new student housing project, Pachyderm Place, has a separate financing structure, and is not related to the recent refinancing. The residence hall is being developed through a public-private partnership, with approximately $173 million of separate project debt.

The university's strong bond ratings and financial strength "gives us greater capacity to navigate uncertainty, but it does not make us immune to the significant headwinds facing higher education," Malone says. "We need to continue looking critically at how we operate to ensure we are efficient, cost-effective, and directing our resources to the areas that matter most. We also need to continue finding ways to strengthen our financial position, so we have the capacity to invest in our academic mission and priorities and position Tufts for the long term."