UPDATE 1-Moody's cuts Pennsylvania's higher education system rating

Tue Oct 23, 2012 6:50pm EDT

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Oct 23 (Reuters) - Moody's Investors Service downgraded Pennsylvania's higher education system on Tuesday to Aa3 from Aa2 because of its declining enrollment and struggle to rein in employee pension and healthcare costs.

The action affects $1.5 billion of the State System of Higher Education's outstanding revenue bonds, issued through the Pennsylvania Higher Educational Facilities Authority. Moody's outlook on the debt is stable.

The action does not, however, impact $528.5 million of privatized student housing debt in Pennsylvania that Moody's also rates.

The credit rating agency cited weakening state support and political hurdles to raising tuition and fees.

It also noted "challenges in reducing expenditures in light of the pervasiveness of system labor unions," adding that Pennsylvania's colleges and universities had large and growing employee retirement liabilities.

Moody's warned in July that it could cut the system's credit rating. The downgrade also reflects a cut in July of the state's credit rating, to Aa2 from Aa1.

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