UC Denver credit at risk from shooting lawsuit-Moody's

WASHINGTON Thu Jan 24, 2013 4:31pm EST

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WASHINGTON Jan 24 (Reuters) - Shootings and other acts of violence are becoming credit risks for U.S. institutions, with fallout from the July 20 mass shooting in a movie theater in Aurora, Colorado, spreading all the way to the bonds sold by the University of Colorado at Denver, Moody's Investors Service said on Thursday.

"The shooting in Aurora is one of a number of tragic violence-related incidents that have led to lawsuits against universities and other not-for-profit organizations over the last year," the rating agency said, noting that on Jan. 14 the wife of a victim of the shooting sued the university.

"The lawsuits are credit negative for affected universities because they create financial and reputational risks and divert senior management's efforts away from other operating activities," it added.

The victim's wife sued the university and staff there, saying it should have warned authorities that the alleged shooter, former student James Holmes, was a safety threat. Moody's said there are also "several other pending lawsuits."

State law limits claims against the university system to $600,000 per occurrence regardless of how many people are involved, which means that if the midnight-showing shooting is counted as a single incident, the university could have to pay out slightly more than half a million dollars, Moody's said.

But the law also has a limit of $150,000 per person, and if each death is counted a separate incident the bill could be higher.

It added that "the university can draw on the $927 million of unrestricted financial resources it had as of June 30, 2012."

The college has said it believes the lawsuit to be not well founded, legally or factually.

Beyond the sums of money the university may have to pay out, it faces risks from damage to its reputation, which in turn could drive students away from enrolling, Moody's said.

While the shooting ranks as one of the worst cases of U.S. gun violence, it is not alone. Last month, a gunman shot and killed 20 students and six teachers at Sandy Hook Elementary School in Connecticut, his mother and ultimately himself.

U.S. Vice President Joe Biden is leading an effort to create tougher restrictions on gun use but could face resistance from Republicans in Congress.

Most credit risks to public universities stem from tuition and enrollment problems, or cuts to state funding. But in November 2011, Moody's began reviewing the credit stability of Pennsylvania State University because of the school's child sex abuse scandal, saying the university had to contend with direct litigation costs as well as indirect effects on enrollment and donations.

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