Michigan State University’s reputation and credit rating are at risk following the conviction of former employee Larry Nassar on sexual assault charges.
On Tuesday, Moody’s placed the university’s Aa1 rating under review for downgrade. The review affects approximately $975 million of long-term debt.
Nassar was sentenced to 40 to 175 years in prison after more than 150 women and girls testified that he sexually abused them over the past two decades. Nassar has been criminally charged in just ten cases. Michigan State employed Nassar as a physician and associate professor from 1996 to 2016. The university is now facing intense scrutiny for neglecting to act on allegations against Nassar, the earliest of which emerged as far back as 1997 and extend to his work with the U.S. national gymnastics team.
S&P Global Ratings , which rates the university AA-plus, hasn’t acted but said in a January report on higher education that reputational risk can have material impact on a beleaguered school’s credit. The fallout, S&P said, can range from widespread negative press, the resignation and the loss of key sponsorship – all of which MSU has already suffered.
If the issue persists long enough reputational risk could lead to loss of fundraising or enrollment.
For now, only the Moody’s rating is on the line.
“The review will focus on any financial, legal, or reputational impacts on the university, as well as the strength of the university's management and governance, that we believe would affect the university's credit quality,” Moody’s wrote.
MSU faces lawsuits from more than 100 women, alleging that the university allowed Nassar's abuse to persist despite victims' complaints. The suits are one of the major factors prompting the Moody's review. The school is seeking to have those lawsuits dismissed based on, among other things, full immunity from all state law claims and lack of standing for federal law claims.
The university has an undisclosed amount of insurance coverage, as well as approximately $1.5 billion of unrestricted monthly liquidity as of June 30, 2017, which could be used towards legal fees, restitution, and other unforeseen costs, according to Moody’s.
Moody's, which announced the review of the school on Tuesday, says it also will determine if the scandal will impact donations to the school or lead to a decline in applicants. Moody's said it will monitor ongoing investigations of the school by Congress, the Michigan state legislature, the U.S. Department of Education, and the NCAA.
The university's enrollment has been steady in recent years, with over 45,000 full-time equivalent students in fall 2017. The university recently completed a successful campaign, raising over $1.5 billion, which Moody’s said, demonstrated strong support by donors.
The school issued a statement saying it was aware of the action by Moody's.
"Our focus is on taking the actions that demonstrate that the voices of the survivors have been heard, and on creating a culture that provides a safe environment for all members of our community," said the school. "These actions will provide the right foundation for the university's future."
The material impact of reputational risk has ranged from widespread negative press, the resignation and the loss of key sponsorship.
Lou Anna Simon, MSU’s president, and Mark Hollis, the university’s athletic director, have both stepped down in the wake of the Nassar scandal.
The university announced Tuesday that former Gov. John Engler will take over as interim president.
On Tuesday Lansing-based Auto-Owners Insurance, a sponsor of MSU’s athletic department, asked to pull its logo from the backdrop used at MSU press conference.
“The company does not believe it is currently appropriate to place advertising branding on media backdrops used during discussions of serious topics that have impacted the lives of many,” Trevor Mahoney, a spokesperson for Auto-Owners Insurance said in a statement.