BOSTON Nov 11 The child sex abuse scandal at
Penn State University reached Wall Street on Friday, with
ratings agency Moody's warning of a possible credit downgrade,
which would push up borrowing costs for the prestigious
"Over the next several months, Moody's will evaluate the
potential scope of reputational and financial risk arising from
these events," said Dennis Gephart, a senior analyst at
Penn State's roughly $1 billion in debt is currently rated
Aa1, reflecting very strong student demand and other credit
strengths at Pennsylvania's flagship state-run university.
Moody's cited the school's strong academic brand, which it
said has "improved substantially" over the past few decades,
and its ability to draw out-of-state students who pay higher
Graham Spanier, who was asked to step down as president, is
recognized for having lifted the university's academic
reputation during his 16 years at the helm.
Moody's said it is watching a number of factors that could
come out of the scandal centered on Jerry Sandusky, the former
assistant football coach to the Nittany Lions who has been
charged as a serial pedophile, and school officials who were
made aware of the alleged abuse but did not alert police.
The fear is that the scandal could drive away students and
faculty and negatively impact donor giving.
The possible negative effects on Penn State's considerable
fund-raising muscle will be "a major risk area that we are
going to be assessing," John Nelson, a managing director at
Moody's, told Reuters.
"The effects of these events on their reputation in terms
of student demand, in terms of donor support and faculty
recruitment in the research field" will be closely watched.
In higher education giving, "typically 90 to 95 percent of
the gifts come from only 5 to 10 percent of the donors," Nelson
said, which puts the spotlight on high net-worth alumni
In 2010, about $185 million was contributed to the
university's endowment fund, according to Moody's.
The overall revenue base of the university was $4.3 billion
in 2010, Gephart said. Only about 2 percent of that came from
the popular football program, he said.
The largest component -- about 40 percent -- comes from
student tuition and fees, with 24 percent from operations of
the university's hospital and 22 percent from research grants
and contracts from the government and private corporations.
Other factors that will come under watch by Moody's include
potential lawsuits and settlements and significant management
or governance changes.