By Hilary Russ
July 24 Moody's Investors Service said on
Tuesday it may cut its Aa1 rating on Pennsylvania State
University's $1 billion worth of outstanding debt one day after
two college athletic conferences fined the school in connection
with a child sex abuse scandal.
The scandal that rocked Penn State's top-tier football
program led to several investigations, which "collectively point
directly to weaknesses in the university's management and
governance practices," Moody's said in a statement.
The rating agency said it was concerned about a report by
former FBI director Louis Freeh, whose probe focused on the
apparent failure of Penn State's board and management to
properly investigate allegations against ex-assistant football
coach Jerry Sandusky. Sandusky was convicted in June of sexually
abusing 10 boys over 15 years.
Other state and federal investigations are continuing,
In its 90-day review, Moody's will also look at potential
negative implications for the university's student demand and
fundraising efforts, neither of which appeared to be weakened
before the sanctions were issued.
Moody's acknowledged that though the time frame for its
review was short, impact from the scandal was likely to develop
over several years.
The governing body of U.S. college sports, the National
College Athletic Association and the Big Ten Conference of
college sports together fined Penn State about $73 million on
MUTED REACTION ON THE MARKET
Other rating agencies are taking a measured approach to the
latest fallout from the scandal. Standard & Poor's Ratings
Services said on Monday that the penalties won't have an
immediate impact on its ratings of Penn State's debt.
S&P's long-term ratings on Penn State's various revenue
bonds is AA with a stable outlook.
"We view the initial impacts of the NCAA penalties... as
having a minimal impact on financial resources and annual
operations," S&P said in a statement.
The school raised nearly $4.6 billion in revenues in fiscal
S&P remains concerned, however, because the scope of Penn
State's liability hasn't been fully identified yet, it said.
Reaction to Penn State's punishment in the U.S. municipal
bond market was muted, analysts and traders said.
"It is doubtful that there will be fallout from the PSU
'near death experience' expressed in bond prices," said Van Eck
Global chief municipal strategist James Colby.
For example, the price of Penn State's 30-year maturity
issued in 2010 has climbed steadily from $106 at the start of
this year to nearly $112.70 as of the market close yesterday,
"Dealer bids are well within the typical spread range for a
long bond like this," he said.