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Penn State Debt May Be Cut by Moody’s on Child Sex-Abuse Scandal

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Nov. 11 (Bloomberg) -- Penn State University had its Aa1 revenue-bond rating placed on review for possible downgrade by Moody’s Investors Service amid the investigation into a child sex-abuse scandal.

Moody’s said it will examine the reputational and financial risk arising from the probe, after the Penn State football team’s former defensive coordinator, Jerry Sandusky, was charged with sexually assaulting eight boys from 1994 to 2009.

About $1 billion of rated debt would be affected by a downgrade, according to the statement. The company said it will take several months to monitor events, including possible lawsuits, weaker student demand, decreased philanthropic support, changes in its relationship with the state and management moves. Aa1 is Moody’s second-highest rating.

“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,” Moody’s said in the statement.

A Penn State revenue bond maturing in March 2030 traded Nov. 9 at an average yield of 3.65 percent, down from 4.15 percent in a trade about a month earlier, according to data compiled by Bloomberg.

Penn State, with 96,000 students and more than 500,000 alumni, raised $195.3 million last year, up from $82 million in 1995, when former President Graham B. Spanier was appointed, according to the Council for Aid to Education, which tracks gifts. Spanier and football coach Joe Paterno were fired this week.

To contact the reporters on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net; Greg Chang in San Francisco at gchang1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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