Administration

Moody’s gives Penn State positive rating, citing improved governance

UNIVERSITY PARK, Pa. — Penn State has received another strong report from Moody’s Investor Services, which gave the University a rating of Aa2 with a positive outlook, citing “significantly strengthened governance and management practices.”

The credit rating company’s rating assignment (issued on April 23), points to Penn State’s liquidity, strong operations and cash flow, fundraising and “strong national student demand for a leading national research university.”

“Penn State's Aa2 rating reflects its position as one of the nation's largest and leading public universities, sustained philanthropic support, modest financial leverage and significantly strengthened governance and management practices,” the Moody’s report notes.

Joseph Doncsecz, Penn State associate vice president for finance and corporate controller, credited the policies and reforms University leadership has instituted since November 2011 with the strong ratings.

“The University continues to implement improvements to our policies and procedures for doing business and running a world-class university,” Doncsecz said.

The Moody’s report follows similarly strong ratings from Standard & Poor’s, which are AA with a stable outlook.

Other factors cited in the Moody’s report include increasing donor support in fiscal year 2014, strong student demand and a board of trustees that continues to focus on implementing “thoughtful and comprehensive governance practices and risk management procedures.”

The Moody’s report also points to the partnership that the Penn State Milton S. Hershey Medical Center and PinnacleHealth approved forming earlier this year and the planned acquisition of St. Joseph Regional Health Network. Following the needed approvals from state and federal agencies, plans are to bring the health care systems together under the umbrella of a nonprofit, Penn State Health.

While the Moody’s report says that the University’s “primary credit challenge” comes from the risks associated with those planned acquisitions and mergers, it also notes the positive long-term impact the enterprise is expected to bring.

“The positive outlook reflects expectations of continued strong liquidity and cash flow from operations, and that the proposed expansion of the healthcare operations will ultimately strengthen the competitive position of the university's patient care enterprise in a consolidating healthcare market.”

Challenges cited by Moody’s include the continued possible impact of the sexual abuse scandal related to former assistant coach Jerry Sandusky, national competition for students among universities and the associated tuition costs, and rising pension costs.

The positive report follows an improvement in outlook in November 2013, when Penn State went from a rating of Aa2 with a stable outlook to a rating of Aa2 with a positive outlook.

Last Updated April 27, 2015