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S&P revises Penn State's outlook to negative, fifth civil lawsuit filed in abuse scandal

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S&P revises Penn State's outlook to negative, fifth civil lawsuit filed in abuse scandal

Standard & Poor's Corp. this week revised Pennsylvania State University's bond rating outlook to negative as the embattled school also was hit with its fifth civil lawsuit involving child sexual abuse allegations against former Penn State assistant football coach Gerald A. Sandusky.

S&P revised its outlook to negative from stable and affirmed its AA bond rating for Penn State, the New York-based financial rating agency said in a statement Monday.

Penn State also on Monday was named in another lawsuit. The suit, filed by a 22-year-old man, alleged that Mr. Sandusky sexually abused him during a summer camp held on Penn State property when he was 14 years old. It was filed in U.S. District Court for the Middle District of Pennsylvania in Scranton, Pa.

The suit also named Mr. Sandusky; the youth charity he founded in 1977, Second Mile Inc.; and former Penn State officials Graham Spanier, Timothy Curley and Gary Schultz, among others.

In the suit, the plaintiff, “John Doe,” alleged that Penn State, among others, knew of and failed to prevent Mr. Sandusky's alleged child sexual abuse misconducts.

John Doe alleges that in 2005 while attending a Second Mile summer camp, Mr. Sandusky fondled him in a swimming pool on Penn State property.

“The defendants' cover-ups and protections of Sandusky's and Penn State University's unlawful misconduct was and is the proximate cause of the injuries plaintiff suffered at Sandusky's hands,” the suit said.

Penn State declined to comment on pending litigation, but did confirm that this is the fifth civil lawsuit brought against the school in connection with the Sandusky scandal, a spokesman said in an email.

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The university also declined to comment on how its liability insurance would respond to Sandusky-related litigation other than “we expect it to cover claims,” the spokesman said.

Penn State has a captive insurer, Nittany Insurance Co., which it formed in 1993 in Vermont. Coverage provided by the captive includes general and professional liability, according to Penn State's website. The university previously has said it expects its general liability and directors and officers liability insurance policies to cover the defense claims brought against the school, its officers, employees and trustees.

Mr. Sandusky this month was sentenced to 30 to 60 years in prison for sexually abusing boys, often on Penn State property.

Penn State's legal troubles are further compounded by an independent investigation that concluded that top Penn State officials did nothing to investigate child sexual abuse allegations, which is likely to make it more difficult to reach settlements of the cases, experts say.

The school's legal woes also were a factor in S&P's Monday rating outlook change, which cited financial uncertainty due to pending litigation and related expenses regarding the Sandusky scandal.

“While Penn State's current credit metrics remain consistent with the rating category, we believe that the uncertainty and potential magnitude of financial liability could lead to credit deterioration over the next two years,” said Blake Cullimore, a credit analyst at S&P, in the statement.

“The university remains among the top 40 public rated institutions in the country and maintains the same rating as the Commonwealth of Pennsylvania,” Penn State said in a separate statement Wednesday. “The university's S&P outlook will be assessed again within the next two years.”