Moody's Investors Service said it has placed the Aa1 revenue bond rating of Pennsylvania State University on review for possible downgrade in the wake of several significant events affecting the future credit position of the university.

The rating action affects approximately $1 billion of debt.

The most notable recent events include the release of an investigative report from former FBI Director Louis Freeh, which heavily criticized Penn State's governance and management, and the disclosure of sanctions on July 23, 2012 by the National Collegiate Athletic Association (NCAA) and the Big Ten Conference.

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.

The review will assess the potential credit implications of these reports and investigations, which collectively point directly to weaknesses in the university's management and governance practices. The Freeh Report, released on July 12, focused on the failure of the university's board to implement and practice effective oversight of the university.

The report, commissioned by the Penn State board, cited board and management failures to act on, or investigate, alleged charges of sexual abuse against Jerry Sandusky, a former assistant football coach.

The review will focus heavily on Penn State's governance and management, including the implementation of the recommendations of the Freeh Report, as well as other changes in board and management structure and process.

Potential negative implications for the university's student demand and fundraising will also be assessed in the context of these more recent findings and sanctions.

Trends evident prior to these recent events did not indicate weakening in either student demand or fundraising. Although the likely impacts of the events and expected changes will occur over several years, the review is expected to be completed within the next 90 days.

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