Moody’s Investors Service downgrades Penn State credit rating after Jerry Sandusky scandal

mmorgan@centredaily.comOctober 26, 2012 

Moody’s Investors Service has downgraded Penn State’s long-term credit rating in the aftermath of the Jerry Sandusky sex abuse scandal.

After a 90-day review period and citing an uncertain future with the ongoing fallout from the scandal, Moody’s released a report Friday cutting the rating from AA1 to AA2 with a stable outlook — the third-highest of the service’s 21 credit ratings.

Moody’s expects Penn State to “remain a leading U.S. public university with favorable student demand, positive operating performance, high donor support and a strong research position,” according to the report.

University officials were not surprised by the downgrade but take it seriously, according to a Penn State news release.

“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,” David Gray, Penn State senior vice president for finance and business/treasurer said in the release.

University spokesman David La Torre said the university would have no additional comment.

The uncertainty swirling around the scandal such as more people coming forward and bringing lawsuits against the university was a chief reason for the drop, according to the report. Though Penn State was ruled stable at the lower rating, there is a chance that increased lawsuits and failing to implement the Freeh report recommendations could bring the rating down even further. Penn State is currently moved from review status, and other downgrades would have to come at a later date.

There isn’t much chance of making the rating go up in the short term, but increased demand by students and potential applicants could help, according to the report.

But the investors service expects that there won’t be much of a drop-off in terms of function and productivity at the university as a result of the rating.

“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.

Penn State trustees Chairwoman Karen Peetz said the change in the Moody’s rating is “one tiny step down with a stable outlook.”

“It’s not a big deal,” she said. “If we were to issue debt, it might mean a couple more basis points. We’re not planning on issuing debt, so it really shouldn’t have any impact at all.”

This rating comes in conjunction with a Standard and Poor’s report released Oct. 17 in which Penn State retained its AA rating, but the outlook of retaining that mark was bumped from “stable” to “negative.”

Despite both reports Gray expects Penn State not to experience noticeable negative consequences.

“For both agencies, uncertainty of any settlements and outcomes was the primary consideration,” Gray said. “I am confident that our underlying financial status suggests that we will remain among the top universities in creditworthiness.”

Matt Morgan can be reached at 235-3928. Follow him on Twitter @MetroMattMorgan.

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