NEW YORK - Moody’s Investors Service late Friday placed the Aa1 revenue bond rating of Pennsylvania State University on review for possible downgrade, saying it must assess the risks evolving from criminal charges involving child sexual abuse that led to Wednesday night’s firing of long-time head football coach Joe Paterno and president Graham Spanier.
Penn State has about $1 billion of rated debt.
The state attorney general’s office earlier in the week charged former defensive coordinator Jerry Sandusky with sexual abuse, and also accused two university administrators — athletic director Timothy Curley, who is on administrative leave, and now-retired vice president Gary Schultz — of failing to properly report what they knew about the incident, which allegedly involved Sandusky and a 10-year-old boy in the locker room.
The firing of Paterno, the Nittany Lions’ head coach for 44 years, triggered rioting at the State College, Pa., campus on Wednesday night and Thursday morning.
Moody’s, in its first published report on the university since April 28, 2010, said it would examine such credit risks as potential lawsuits and settlements, and a drop-off in donations over the next few months.
“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,” vice president and senior analyst Dennis Gephardt said in a report.
The rating agency cited Penn State’s strong student demand — it draws many out-of-state students who pay high tuition rates among its full-time equivalent enrollment of 80,000 — and brand identity in awarding its Aa1 rating.
Penn State reported total operating revenues of $4.6 billion for fiscal 2011, according to Moody’s. The school reported $725 million of research expenditures for fiscal 2011.
In addition to its flagship campus, the school runs several regional campuses. The university also operates a major hospital, the Penn State Milton S. Hershey Medical Center, “which generates good operating margins,” Moody’s said.
Standard & Poor's, meanwhile, said the recent developments would not affect its long-term ratings on various Penn State revenue bonds (AA, stable) and short-term rating on the university's series 2009B bonds (A-1+).
