UNIVERSITY PARK, Pa. — Penn State’s finances and long-term outlook remain strong, according to recently released reports from Moody’s Investors Service and S&P Global Ratings.
Both services gave the University’s credit rating a “stable” outlook, with Moody’s extending Penn State’s Aa1 stable rating and S&P continuing the University’s AA long-term rating with a stable outlook. The ratings, which are the second-highest offered by each firm and on par with numerous peer research universities, reflect Penn State’s good financial standing and creditworthiness.
“With financial challenges and changes impacting Penn State and many higher education institutions across Pennsylvania and the country, we are pleased that Moody’s and S&P continue to recognize Penn State’s strategic efforts to address these challenges and their reaffirmation of our strong financial outlook,” said Sara Thorndike, Penn State’s senior vice president for finance and business/treasurer. “These positive credit ratings are evidence of the agencies’ ongoing agreement with Penn State’s overall fiscal strength.”
The report from Moody’s, which was released Aug. 15, notes that the stable outlook “reflects Moody’s expectations of continued strong revenue growth, sound operating performance and strong liquidity. It also incorporates expectations of maintenance of manageable financial leverage.”
In determining Penn State’s Aa1 stable evaluation, Moody’s stated the University’s rating “reflects its excellent brand and strategic positioning as a flagship land-grant university.”
The agency added, “With large academic, research and clinical enterprises, the university maintains excellent revenue diversity despite more limited state financial support relative to many peers. The university’s strong national reputation and large footprint will continue to support favorable student demand, even as demographic and competitive pressures intensify.”
Other credit strengths outlined in Moody’s report include Penn State’s substantial total cash and investments, manageable financial leverage and disciplined financial management.
S&P’s report, released Aug. 8, notes that while Penn State continues to face budget challenges in the near term, “it is our belief that management is working diligently to improve the university’s financial position,” and that the ratings agency expects “budget figures will be improved upon over the next two years.”
The report noted the University’s good revenue diversity, and said its long-term rating with a stable outlook reflects the agency’s view of Penn State’s “very strong enterprise risk profile” characterized by its flagship status as the commonwealth’s largest university; its recognition as an R1 research institution; steady student enrollment with high retention rates; broad programmatic offerings and strong philanthropic support. The S&P report also highlights Penn State’s “very strong” financial risk profile, citing the University’s consistently positive financial performance on a full accrual basis for the past five audited fiscal years as well as its revenue diversity.
The S&P report also states, “We view Penn State’s financial risk profile as very strong ... we understand management expects stronger results for fiscal 2024 in comparison with fiscal 2023.”
The agencies noted several potential credit challenges for Penn State, including a decline in the number of graduating high school seniors that has increased enrollment pressure and competition for students for institutions of higher education across Pennsylvania; lower state funding relative to many public universities; high exposure to the evolving risks of the healthcare industry, with about 45% of consolidated operating revenue derived from patient care services through Penn State Health; the University’s overall size and complexity; Penn State’s long-range capital program and a relatively new senior management team that is addressing budget challenges.