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Moody's downgrades Penn State's credit rating

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Moody's downgrades Penn State's credit rating

Moody's Investors Service Inc. on Friday downgraded Pennsylvania State University's rating, affecting $893 million of outstanding rating debt, due to potential settlement costs involving child sexual abuse allegations against former Penn State assistant football coach Gerald A. Sandusky.

The downgrade comes as Penn State's board of trustees also on Friday authorized a subcommittee to approve potential settlements of claims made against the school in connection with the Sandusky scandal.

Penn State was downgraded to Aa2 from Aa1 due to “anticipation of the substantial financial impact on the university from the ultimate cost of future settlements and possible judgments, stemming from sexual abuse claims made by victims of convicted former assistant football coach Gerald Sandusky,” the New York-based rating service said in a statement Friday.

The Aa2 outlook is stable and with expectations that Penn State will remain “a leading U.S. public university with favorable student demand,” Moody's said.

As part of its strengths, Moody's noted Penn State's commitment to quickly resolve abuse claims.

In a special meeting Friday, Penn State's board of trustees approved the Subcommittee on Legal, an arm of the board's Committee on Legal and Compliance, the authority to approve potential claims settlements for alleged sexual abuse involving Mr. Sandusky, Penn State said in a statement.

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"As we have previously said, the university intends to deal with these individuals in a fair and expeditious manner, with due regard to their privacy,” said Penn State President Rodney Erickson in the statement.

Penn State said its attorneys have reached out to begin settlement talks with 20 men who charge Mr. Sandusky abused them. That includes eight people who testified for the prosecution of Mr. Sandusky, three other who have filed lawsuits, and at least nine others who have come forward through counsel with allegations of abuse, the school said in the statement.

This month, Standard & Poor's Corp. revised Penn State's outlook to negative as a fifth civil lawsuit was filed naming the school involving child sexual assault allegations.