Moody's confirms Penn State's Aa1 rating with negative outlook

NEW YORK—Moody's Investors Services Inc. has confirmed Pennsylvania State University's long-term credit rating of Aa1 with a negative rating outlook.

The rating agency, which confirmed the rating Friday, placed Penn State on review for possible downgrade in November as Moody's weighed potential reputational damage confronting the university days after allegations of child sexual abuse misconduct surfaced involving former football assistant coach Gerald A. Sandusky, as well as charges of perjury and failure to report against two senior university officials.

“We expect that the most likely outcome will be that the university will settle a manageable number of claims by victims, with no substantial financial weakening, while also maintaining high levels of donor support and student demand,” New York-based Moody's said in a Friday statement. “We also consider risks of loss of research funding competitiveness to be minimal.”

The negative rating outlook reflects “ongoing uncertainty” with regard to litigation costs and indirect effects on enrollment and philanthropy, Moody's said.

Penn State last week said it has paid nearly $3.2 million in legal fees to consulting and public relations firms as it addresses the child sexual abuse allegations. The university also filed a countersuit against its commercial general liability insurer, Pennsylvania Manufacturers' Assn. Insurance Co., for refusing to honor obligations under CGL policies in connection with a November lawsuit filed against Penn State claiming negligence related to Mr. Sandusky's alleged sexual misconduct.

Moody's said the university's rating reflects its leading position as a public university with a strong academic brand identity and “market strengths in student demand, research and fundraising.” It will reassess Penn State's credit profile over the next year to determine whether negative credit effects are emerging, according to the statement.