Moody’s Rating Agency just put Penn State on downgrade review because of the abuse crisis.That’s the newest twist in the scandal that has engulfed State College, PA.
It currently has an Aa1 rating, but Moody’s argues that it faces “reputational and financial risk” in the coming months.
In specific, “potential lawsuits/settlements, weaker student demand, declines in philanthropic support, changes in state relationship and significant management or governance changes” could harm its standing.
Here’s the official release.
NEAR AND LONGER-TERM CREDIT RISKS WILL BE ASSESSED FOR UNIVERSITY WITH APPROXIMATELY $1 BILLION OF RATED DEBT
New York, November 11, 2011 — Moody’s Investors Service has placed the Aa1 revenue bond rating of Pennsylvania State University (Penn State) on review for possible downgrade to assess credit risks emanating from the announcement this week by the Pennsylvania Attorney General of the filing of criminal charges involving child sexual abuse against a former assistant football coach, as well as perjury and failure to report charges against two senior university officials, including the CFO of the university. The university board has also dismissed Penn State’s president and head football coach.
Over the next several months, Moody’s will evaluate the potential scope of reputational and financial risk arising from these events. While the full impact of these increased risks will only unfold over a period of years, we will also assess the degree of near and medium term risks to determine whether to downgrade the current Aa1 rating. We will monitor possible emerging risks emanating from potential lawsuits/settlements, weaker student demand, declines in philanthropic support, changes in state relationship and significant management or governance changes.
Penn State is currently rated Aa1, reflecting its very strong student demand and other credit strengths linked to its status as Pennsylvania’s flagship and land grant university. Penn State has developed a strong national academic brand identity that has improved substantially over the past several decades. It has demonstrated consistent ability to draw out-of-state students who pay high tuition rates, which mitigates exposure to the declining number of high school graduates in its home state. In addition to its flagship campus in State College, it operates regional campuses throughout Pennsylvania. The university is a major research enterprise as well, with $725 million of research expenditures reported for fiscal year (FY) 2011. It also operates a major hospital which generates good operating margins. The University is one of the largest in the U.S., with enrollment of over 80,000 full-time equivalent students and total operating revenues of $4.6 billion for FY 2011. FY 2011 financial resources totaled $3.9 billion, most of which are liquid, unrestricted investments. For more information, please see Moody’s last published report for Pennsylvania State University dated April 28, 2010.
The principal methodology used in this rating was U.S. Not-for-Profit Private and Public Higher Education published in August 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
The Global Scale Credit Ratings on this press release that are issued by one of Moody’s affiliates outside the EU are considered EU Qualified by Extension and therefore available for regulatory use in the EU. Further information on the EU endorsement status and on the Moody’s office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody’s Investors Service information and confidential and proprietary Moody’s Analytics information.
Moody’s considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody’s adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody’s considers to be reliable including, when appropriate, independent third-party sources. However, Moody’s is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see Moody’s Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody’s ratings were fully digitized and accurate data may not be available. Consequently, Moody’s provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
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