Endowment, Madoff Losses Hit Yeshiva

Yeshiva University's tax-exempt bonds have been hammered this week as the private, nonprofit university acknowledged potential losses in an investment scheme and a shrinking endowment.

University president Richard M. Joel confirmed Wednesday Yeshiva stands to lose as much as $110 million in Bernard Madoff's alleged $50 billion Ponzi scheme.

The losses stem from the money the New York institution entrusted to J. Ezra Merkin's Ascot Partners fund, "substantially all" of which Merkin invested in Madoff's fund, Joel said.

Joel also confirmed the university's endowment has shrunk to $1.2 billion from $1.7 billion at the beginning of the year.

The endowment, more than 80% of which was parked in alternative investment funds as of midyear, contributed 13% of the university's income last year.

Moody's Investors Service on Wednesday placed Yeshiva and its $177.2 million of bonds on watch list for a possible downgrade. Moody's rates Yeshiva's credit quality Aa2.

The university's bonds maturing in 2016 or later have taken a hit this week.

Though private, Yeshiva issues tax-exempt bonds through the Dormitory Authority of the State of New York for construction and refurbishment of facilities.

A Yeshiva bond maturing in 2020 traded Wednesday at a yield of 5.345%, according to data from the Municipal Securities Rulemaking Board, up from 4.63% a month earlier. A bond maturing in 2026 traded at a yield of 6.142%, up from 5.031% in August.

Earlier this week, a customer sold $1 million of bonds maturing in 2016 at a yield of 6.35%, up from 3.832% in May.

The university as of midyear had $265.1 million of long-term debt, which includes a $69 million line of credit and $20.2 million in mortgages, according to Yeshiva's financial statements.

Joel said Yeshiva for the past two months has been "reviewing our budgets to seek ways to cut our operating costs due to global economic realities."

The endowment losses will have minimal influence on the university's daily operations, Joel said. Staff pensions, scholarships, and financial aid will not diminish, he said.

"While certainly this represents a painful decline, we are in the same or better position as many universities," he said.

Yeshiva's losses came to light as colleges and universities across the country announced large endowment losses due to the financial crisis.

With enrollment of roughly 6,600 mostly Jewish students, Yeshiva collected $120.1 million in tuition last year.

Approximately 40% of the university's revenue comes from grants and contracts, mainly from the U.S. Department of Health and Human Services.

The university runs an undergraduate campus in Manhattan, a medical school, and a law school.

Moody's said it is considering a downgrade because of concerns about investment losses and the university's governance.

Yeshiva hired law firm Sullivan & Cromwell and financial adviser Cambridge Associates to help review the university's policies, Joel said.

Moody's noted that despite the potential loss, Yeshiva will still have a "substantial balance sheet and other credit strengths."

Earlier this month, DASNY preliminarily approved Yeshiva's plan to sell up to $125 million of bonds with maturities of as much as 30 years to build an information technology center, renovate an academic building, and refinance a credit line.

The university did not respond to questions about whether this plan has changed.

Another private, nonprofit institution that issues through DASNY - the North Shore-Long Island Jewish Health System - acknowledged potential losses in Madoff's scheme this week.

Chief executive officer Michael Dowling said earlier this week the health system's exposure to the scheme is at most $5.7 million, which was a contribution from a single donor who insisted the money be invested with Madoff.

The maximum loss is less than 1% of the system's investment portfolio, Dowling said.

The health system consists of 15 hospitals and 17 long-term care facilities, plus a research institute, five trauma centers, and a hospice network.

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