Moody’s Reviews PSU Aa1 Bond Rating, Downgrade Possible
Moody’s, a credit rating agency that performs financial research and analysis on commercial and government entities, released a statement today declaring that Penn State’s Aa1 credit rating has been put on review by the company, citing: “possible downgrade to assess credit risks emanating from the announcement this week by the Pennsylvania Attorney General of the filing of criminal charges involving child sexual abuse against a former assistant football coach, as well as perjury and failure to report charges against two senior university officials, including the CFO of the university [Gary Schultz]. The university board has also dismissed Penn State’s president and head football coach.”
A downgrade in credit rating can mean much and many different things across the financial sector, but for an educational institution, it would cause them to have a more difficult time securing a loan, as creditors may be inclined to loan money to the university at a higher interest rate, if at all.
The effects of such a downgrade, which would certainly be worse if the grade drops lower than expected, will be felt by the student body en masse, as monetary funds for buildings and programs will be tougher to come by if Moody’s does indeed lower the University’s credit rating.
But the untold tale of the economic effect of the Sandusky scandal is the fact that Penn State has roughly $1 billion in rated debt, and at a time where donor efforts may dwindle, the university may have to venture for the first time into the difficult world of high interest rates, and even high risk loans should our credit rating plummet far enough.
What this could mean is fewer or limited research opportunities presented by the university, smaller scale or minimal improvement projects, and new building plans forced to postpone until the economic unrest dies down.
While Moody’s review will certainly last as long as if not longer than the impending court cases facing Sandusky, Curley, and Schultz, it does not look like a very high possibility that Penn State will retain its Aa1 credit rating status. All this at a time when money is everything should be a very grave student concern.