Moody’s Investor Services continues to view Penn State’s credit in a favorable light, reaffirming the university’s Aa2 credit rating with a positive outlook. This continues a trend of strong ratings dating back to 2013, when Penn State’s outlook was upgraded from stable to positive.

Moody’s cited several reasons for the rating, most notably including improved university governance.

“[Penn State’s rating] reflects its position as one of the nation’s largest and leading public universities, sustained philanthropic support, modest financial leverage and significantly strengthened governance and management practices,” the report reads in a Penn State news article. Student demand, increasing donor support, and strong liquidity and cash flow were also cited. Somewhat interestingly, the report also cites the Board of Trustees’ “thoughtful and comprehensive governance practices and risk management procedures,” despite the mixed feelings towards the board from the university community at large.

Penn State has one credit concern in particular that the report noted: risk associated with mergers and acquisitions. Although they note the positive impact those decisions can have, there is always long-term credit risk involved in a significant acquisition. General challenges the university, and all in the industry, will face include competition for students, tuition costs, and rising pension issues. The possible continued impact of the Sandusky scandal was also noted, but at this point seems to be an afterthought rather than a key concern.

Moody’s credit ratings run from Aaa to C, meaning Aa2 is the third-strongest rating possible. According to Moody’s Rating Symbols & Definitions guide, “Issuers or issues rated Aa demonstrate very strong creditworthiness relative to other US municipal or tax-exempt issuers or issues.”

Photo: Hailey Rohn