Moody's puts Penn State on credit review

NEW YORK (CNNMoney) -- Moody's put Penn State on notice for a possible credit downgrade Tuesday, May 24th, citing continued fallout from the university's child sex abuse scandal and risks posed by ongoing state and federal investigations.

Penn State currently holds a credit rating of Aa1, the second highest possible mark, and one that reflects strong student demand and a strong national academic brand.

The university has about $1 billion in rated debt. Along with a loss of prestige, a downgrade could make it more expensive for Penn State to borrow money.

The credit rating agency is expected to complete its review of the university within 90 days.

The credit review is the latest blow to Penn State after Jerry Sandusky, an former assistant football coach, was convicted of sexually assaulting ten young boys over a 15-year period.

On Monday, the NCAA announced significant sanctions against the university, including a $60 million fine. The football team was able to avoid the so-called death penalty, but the actions were severe enough that the team is not expected to be competitive for many years.

In a separate action, the Big Ten conference said that it would donate Penn State's share of bowl revenue to charity, a loss of roughly $13 million for the university.

Moody's said in an analysis that the monetary fines announced Monday appear manageable given the "substantial reserves of the university."

But ongoing investigations by state and federal officials could result in further criminal charges and monetary penalties, and uncertainty about future actions contributed to the agency's decision to launch a review.

Moody's said its review would focus heavily on Penn State's governance and management, and specifically cited the findings of the Freeh Report.

That report, an internal review paid for by Penn State, found top university officials, including former president Graham Spanier and football coach Joe Paterno, had failed to report abuse and created an environment that helped to empower Sandusky.

"The review will assess the potential credit implications of these reports and investigations, which collectively point directly to weaknesses in the university's management and governance practices," Moody's said.

A previous review of Penn State's credit rating, launched by Moody's in November, did not result in a downgrade.

Penn State is Pennsylvania's flagship public university with more than 80,000 students and operating revenues of $4.6 billion.

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