Moody’s Investors Service announced Tuesday the agency plans to review Michigan State University’s credit rating for a downgrade, another sign of the fallout amid the Larry Nassar sexual abuse scandal.
The review could affect about $975 million of long-term debt associated with the East Lansing school, which now has an Aa1 rating, Moody’s said.
The bond credit rating company expects to assess credit risks resulting from the controversy as well as “focus on any financial, legal or reputational impacts on the university, as well as the strength of the university’s management and governance, that we believe would affect the university’s credit quality,” Moody said in a statement.
The agency also expects to examine the affect on the university’s student demand and fundraising. The university's enrollment has been steady in recent years, with over 45,000 full-time equivalent students in fall 2017, the report said. The university recently completed a successful campaign, raising over $1.5 billion, demonstrating strong support by donors, it said.
MSU spokesman Jason Cody said Tuesday that the university was aware of the reviewand working to improve conditions in the wake of the Nassar scandal.
Moody’s review came comes less than a week after Nassar was sentenced to 40-175 years in prison for sexually abusing young athletes over more than two decades while working as an osteopathic sports doctor with MSU and USA Gymnastics.
“Our focus is on taking the actions that demonstrate that the voices of the survivors have been heard, and on creating a culture that provides a safe environment for all members of our community,” Cody said. “These actions will provide the right foundation for the university’s future.”
A credit downgrade would increase MSU’s costs to borrow money. In recent years, Michigan school districts faced higher borrowing costs after downgrades.
Moody’s noted Tuesday that MSU also is facing civil lawsuits from more than 100 women.
“The university has an undisclosed amount of insurance coverage, as well as approximately $1.5 billion of unrestricted monthly liquidity (as of June 30, 2017), which could, among other things, be used towards legal fees, restitution, and other unforeseen costs,” the agency said.
Last month, MSU established a $10 million counseling fund for victims.
Moody’s also noted the school is poised to undergo or is amid other reviews and investigations, including by the National Collegiate Athletic Association and Michigan attorney general.
“MSU’s response to the investigation, requests and inquiries and any potential findings, will weigh heavily in our analysis,” the agency said.
A similar expectation prompted Moody’s in 2012 to downgrade Penn State University’s long-term rating to Aa2 from Aa1 because of the expected financial costs from pending lawsuits related to the Jerry Sandusky sex abuse scandal, the Associated Press reported.