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Penn State's credit rating may be lowered because of scandal

November 11, 2011 |  4:18 pm

Pennstate-EricGay-AP

Penn State's child-molestation scandal just got costlier.

Moody's Investors Service announced Friday that it may downgrade the university's credit rating in light of the lawsuits and other "reputational and financial risk" the school is likely to endure. The shocking allegations of abuse may scare away prospective students and anger deep-pocketed alumni who make large donations to the football powerhouse.

"While the full impact of these increased risks will only unfold over a period of years, we will also assess the degree of near and medium term risks to determine whether to downgrade the current Aa1 rating," Moody's said in a news release. "We will monitor possible emerging risks emanating from potential lawsuits/settlements, weaker student demand, declines in philanthropic support, changes in state relationship and significant management or governance changes."

One risk is that Penn State's insurers may balk at footing the bill for settlements with victims. They potentially could argue that top school officials, including its now-exiled president, Graham Spanier, were aware for years of the abuses allegedly committed by the football team's former assistant coach, Jerry Sandusky, but took no action.

The scandal could do lasting damage to Penn State's reputation -- and bottom line -- on many levels.

For example, Penn State has "a strong national academic brand identity that has improved substantially over the past several decades" and the school draws large numbers of "out-of-state students who pay high tuition rates," Moody's said.

Penn State had total operating revenue of $4.6 billion in fiscal year 2011, according to Moody's.

RELATED:

Penn State's moral lapses

An emotional day after at Penn State

Penn State puts Mike McQueary, who reported sexual abuse, on leave

-- Walter Hamilton

Photo: Jerry Sandusky, Penn State's former assistant football coach, has been accused in a sex abuse scandal that could affect the school's credit rating. Credit: Eric Gay / Associated Press

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