Federal basketball probe lands University of Louisville on review for downgrade

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BRADENTON, Fla. – The University of Louisville and its foundation have been placed under a new review for possible downgrade by Moody's Investors Service due in part to the developing federal investigation into basketball recruiting violations.

Moody’s affirmed the university’s A1 rating and the A3 on the University of Louisville Foundation Tuesday, after removing them from a review that was initiated in July when the state of Kentucky was downgraded to Aa3 from Aa2.

A new review has begun because of “newly developing credit issues, including recent criminal allegations against senior athletic personnel” that could increase financial burdens, said lead analyst Mary Cooney. The university already has weakened liquidity and there are questions about integration risk from the July 1 academic affiliation agreement with the University Medical Center, she added.

“While we acknowledge the regional and academic importance of the University of Louisville, adverse impacts from the confluence of these governance, legal, operational and financial risks could put multiple notch downgrade pressure on the ratings, respectively,” Cooney said.

At least one unnamed University of Louisville basketball coach has been included in a criminal complaint involving a number of universities, and two related fraud and corruption schemes investigated by the FBI and the U.S. Attorney's Office for the Southern District of New York, according to reports by WDRB.

The complaint says that the Louisville coach funneled $100,000 from an athletic shoe company to the family of a basketball recruit in violation of NCAA rules.

On Monday, the University of Louisville's athletics board voted to fire basketball coach Rick Pitino, who had already been placed on leave. Pitino had said in a statement Sept. 26 that he was “shocked by the allegations” and that he would take steps to ensure those responsible would be held accountable.

The university named David Padgett as acting head men’s basketball coach on Sept. 29.

Eight of Kentucky’s public universities and colleges, including the University of Louisville, were placed on review in July, a move that was triggered by the state’s downgrade.

Moody’s said Tuesday that the July review was complete, with no rating changes. However, the outlooks for three universities - Murray State, Northern Kentucky, and Eastern Kentucky - were revised to negative from stable due to pressure on the state's revenues and its pension liability.

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