Rutgers Coach Abuse Scandal May Hurt Rating, Moody’s Says

The coach-abuse scandal at Rutgers University is “credit negative” for the state school’s debt because it raises questions about governance and management, Moody’s Investors Service said.

The New Jersey university fired men’s basketball coach Mike Rice, who had 15 wins and 16 losses in the past season, on April 3 after video showed him kicking players and throwing balls at them while hurling epithets, including gay slurs. His boss, Athletic Director Tim Pernetti, resigned two days later.

The eighth-oldest U.S. college is investigating how the men’s basketball program handled the claims of abusive behavior after Rutgers four months ago suspended and fined Rice instead of removing him, Moody’s said in a report today. Rutgers, based in New Brunswick, has more than 58,000 students on three campuses.

“These events are credit negative for Rutgers because they draw criticism from national media and public officials, raise questions about governance and management practices at the university, and strengthen the possibility of government investigations and possible legal actions,” Edith Behr, a Moody’s analyst, said in the report.

Moody’s placed Rutgers under review for possible downgrade on Nov. 21 because of questions about how much debt it would assume with the acquisition of the University of Medicine and Dentistry of New Jersey, which becomes effective July 1. Moody’s rates Rutgers’s $1.2 billion of debt Aa2, third highest.

Even with the potential of a rating cut, investors are demanding less additional yield to buy Rutgers debt, using BVAL pricing analysis. Rutgers bonds callable in May 2020 and due four years later were valued at a yield spread of 0.85 percentage point above benchmark debt yesterday, compared with 1.1 percentage points Nov. 20, the day before Moody’s placed the school under review for a possible downgrade, BVAL data show.

“The university takes seriously the behavior that came to light in the men’s basketball program, and is continuing to take steps to address concerns raised by the episode,” Steve Manas, a Rutgers spokesman, said in a e-mail.

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