Christie Push for Rutgers Merger Spurs Moody’s Downgrade

Rutgers University, facing questions about emotional-abuse allegations directed at its new athletic director, had its credit grade cut by Moody’s Investors Service because of fiscal pressures from a merger with another school.

Governor Chris Christie’s push to transform Rutgers into a top research institution through the merger with the University of Medicine and Dentistry of New Jersey will raise the school’s direct debt by 56 percent, Moody’s said yesterday in a statement. It cut its rating one step to Aa3, fourth-highest, with a negative outlook, meaning another downgrade may follow.

The school, based in New Brunswick, wasn’t surprised by the downgrade because it is combining its debt with that of a university rated Baa1, the third-lowest investment grade, according to a statement from Greg Trevor, a spokesman.

“Rutgers University has always enjoyed one of the strongest bond ratings of any public institution in the state, and with today’s action maintains a leadership position in New Jersey,” Trevor said. “In the current climate of historically low interest rates, we expect the financial impact of this adjustment to be insignificant and well within the range of our expectations.”

The school will have 57,000 full-time equivalent students and research expenses topping $500 million after the universities are united July 1. On a pro forma basis, which assumes the merger, the consolidated organizations had a negative 8.4 percent operating margin and 0.1 percent operating cash flow margin in fiscal 2012, Moody’s said. It may take two years for savings to emerge from restructuring of the schools, the company said.

Rice Scandal

“This reorganization is occurring at the same time that senior university leadership is facing external scrutiny and criticism stemming from its handling of allegations of abusive treatment of student athletes by a former basketball coach, as well as a new controversy surrounding its recently hired athletics director,” Moody’s said. “We do not anticipate that these controversies will have a lasting credit impact.”

Rutgers fired men’s basketball coach Mike Rice in April after video showed him kicking players, throwing balls and hurling epithets at them. His boss, Athletic Director Tim Pernetti, resigned and was replaced by Julie Hermann, a University of Louisville athletics administrator, on May 15.

On May 25, the Star-Ledger newspaper of Newark, the state’s biggest city by population, said Hermann had used abusive language with volleyball players she coached at the University of Tennessee in 1997. Hermann, in a May 27 statement, said she had worked to ensure that players were treated with respect and dignity.

Christie, a Republican seeking re-election in November, said on May 28 that he wouldn’t interfere with the hiring of Hermann. Speaking in a radio interview, the governor said it was “not my call.”

To contact the reporters on this story: Michelle Kaske in New York at mkaske@bloomberg.net; Pete Young in San Francisco at pyoung13@bloomberg.net.

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

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