Moody's May Downgrade Penn State's Credit Rating in Wake of Sexual-Abuse Charges

November 11, 2011

Moody's Investors Service put Pennsylvania State University "on review" for a possible downgrade of its credit rating on Friday, saying that over the next several months the rating agency will assess the potential scope of "reputational and financial" damage to the university from its child sex-abuse scandal.

Moody's, which now rates Penn State's $1-billion in debt as Aa1, the second-highest of its 10 categories, said it would monitor possible emerging risks from potential lawsuits or settlements as well as from possible declines in philanthropic support, weaker student demand, changes in state government, and significant management or governance changes.

The Moody's announcement came hours after the Penn State Board of Trustees pledged to conduct a full investigation. The trustees fired the president, Graham B. Spanier, on Wednesday. Gary C. Schultz, the former interim senior vice president for finance and business, returned to retirement after being criminally charged with lying to a grand jury and failing to report allegations of suspected child abuse to authorities. He denies those charges.