Moody’s Downgrades Penn State’s Credit Rating

Moody’s Investors Service downgraded Penn State’s Aa1 credit rating to Aa2 with a stable outlook following a 90-day review of the university’s current financial state and an assessment of the ongoing challenges stemming from the Jerry Sandusky fallout and subsequent legal claims.

In the report released on Friday, Moody’s said that Penn State’s research, fund-raising and enrollments continue to function at the high level as per usual. ‘We expect that Penn State will remain a leading U.S. public university with favorable student demand, positive operating performance, high donor support and a strong research position,’ the report read.

‘This action will have no impact on tuition, and fortunately, due to historically low interest rates and no anticipated borrowing in the near future, will have a negligible financial impact,’ said David Gray, senior vice president for Finance and Business/Treasurer.

According to Penn State Live, Penn State officials said they take Moody’s action seriously but were ‘not surprised’ by the credit downgrade, given the current economic climate and the many hardships the university must overcome as it rebuilds post-Sandusky scandal.

In its report, Moody’s said the primary factor that led to the downgrade is the uncertainty what Penn State can expect financially from the ultimate cost of future settlements and possible judgments stemming from sexual abuse claims made by Sandusky’s victims. Moody’s report said that the stable outlook reflects expectations that the University will ultimately resolve victims’ claims and that it will continue its work to implement substantial governance reforms.

According to Penn State, the university has been on Moody’s watchlist since July 24 and Penn State’s new rating of Aa2 is the third-highest category of Moody’s 21 possible ratings and places the University in the same category as 44 other public U.S. institutions.

Moody’s announcement comes subsequent to a revised credit outlook released Oct. 17 by Standard & Poor’s. In its report, S&P reaffirmed the University’s underlying AA rating but revised the outlook from stable to negative. S&P’s report cited potential financial liability tied to Sandusky as a reason for the change.

‘Penn State’s credit rating through S&P remains AA, its third-highest investment grade,’ Gray said. ‘Our current credit metrics remain consistent within every category and we remain among the top 40 public-rated institutions in the country.’