Moody’s Investors Service on Tuesday placed Pennsylvania State University’s Aa1 rating on review for downgrade after the National Collegiate Athletic Association imposed a $60 million fine and other penalties against the school a day earlier.
Moody’s said the move affects roughly $1 billion of rated debt.
On Monday, the NCAA fined Penn State $60 million, about equal to the school’s average annual football-related revenue, in the aftermath of a scandal in which former assistant football coach Jerry Sandusky was convicted on 45 counts of child sexual abuse.
A July 12 report from Louis Freeh, former director of the Federal Bureau of Investigation, lambasted Penn State’s leadership for its handling of the allegations.
The NCAA also limited scholarships, banned bowl appearances for four years and vacated 12 years’ worth of wins by late former coach Joe Paterno, but did not impose a television ban. The school realizes about $21 million annually through television money.
“The uncertainty about future risks emanating from several other investigations at the state and federal level have also contributed to the decision to initiate a review of the rating,” Moody’s said in its statement.
Moody’s expects to finish its review within 90 days.
According to Moody’s, the review will assess the potential credit implications of these investigations, which collectively point directly to weaknesses in the university’s management and governance practices.
Moody’s said it would also assess potential negative implications for student demand and fundraising.
“Trends evident prior to these recent events did not indicate weakening in either student demand or fundraising,” the rating agency said.
Standard & Poor’s said Monday that the NCAA penalties would not immediately affect Penn State’s long-term revenue bonds. It rates those bonds AA with a stable outlook. The short-term rating on the university’s Series 2009B bonds is A-1-plus.