S&P Cites Sandusky in Making Penn State Outlook Negative

Pennsylvania State University had its credit outlook revised to negative by Standard & Poor’s, which cited financial liabilities tied to Jerry Sandusky, the former coach sentenced Oct. 10 for sexually abusing minors.

The action by S&P, which still rates Penn State debt AA, its third-highest investment grade, trails a similar move by Moody’s Investors Service. Moody’s said July 24 that its second- highest Aa1 credit level on the school may be cut.

“We believe that the uncertainty and potential magnitude of financial liability could lead to credit deterioration over the next two years,” Blake Cullimore, an S&P credit analyst, said yesterday in a statement, which referred to “pending litigation and related expenses” from the Sandusky scandal.

The charges against Sandusky, 68, rocked the State College- based school when they became public last year. The former assistant football coach left the team in 1999. He met the boys he abused through Second Mile, a charity he set up for needy children. Prosecutors said he was a serial child molester who used the group to recruit victims, then plied them with money and trips to Penn State football games.

S&P also cited state funding, tuition costs, declining enrollment and capital needs among the school’s challenges. While an upgrade over the next two years is “unlikely,” the company said its current rating reflects Penn State’s strengths as the state’s largest university, strong financial management and low debt levels.

The Moody’s review is in progress, David Jacobson, a company spokesman, said yesterday. In July, Moody’s said it would conclude in 90 days and may affect about $1 billion of university bonds.

A Penn State bond maturing in 2040 traded yesterday to yield 3 percent, compared with 3.2 percent on July 24.

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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