Nassar scandal pulls MSU debt outlook to negative

Kate Smith

Michigan State University’s credit rating outlook was revised to negative from stable by S&P Global Ratings as the school faces mounting scrutiny and financial obligations from sexual assault litigation against former Olympic gymnastics doctor Larry Nassar.

The rating company cited upheaval in senior management and the potential impact on enrollment and the school’s reputation, according to a report published Thursday.

An estimated 250 women accused Nassar of sexual abuse earlier this year, which resulted in a guilty plea and maximum 175 year prison sentence. Michigan State’s president, Lou Anna Simon, resigned in January followed by the athletic director and other top administrators. In February, Education Secretary Betsy DeVos announced a federal Title IX investigation into the school’s handling of reports against Nassar.

In a statement issued Thursday, Michigan State Interim President John Engler said the outlook revision was “not surprising” given trends in higher education including fewer high school graduates and new policies that inhibit enrollment by international students. He didn’t comment on the implications of the Nassar litigation.

“MSU continues to make improvements to its leadership, university structure and Title IX compliance,” Emily Guerrant, a Michigan State spokeswoman, said Thursday in a separate statement. “An announcement last week highlighted an elevated placement of Title IX in the overall hierarchy, and is also adding 12 new outreach, investigative and education staff to better support campus concerns.”

S&P rates Michigan State’s debt AA+, one notch below AAA. On Jan. 30, Moody’s Investors Service placed the school’s Aa1 rating under review for downgrade. The university had almost $1 billion of long-term debt outstanding as of June 30, 2017, according to Moody’s. The school has a $2.7 billion endowment.

S&P also cited “undefined financial obligations” stemming from the lawsuit. Pennsylvania State University has incurred almost $250 million in costs related to former football coach Jerry Sandusky’s abuse of players.

On March 28, the Lansing State Journal reported that Michigan State earlier this year paid $500,000 to public relations firm Weber Shandwick to monitor the social media accounts of Nassar’s victims and journalists covering the case. A Michigan State spokeswoman told the newspaper that the firm no longer works for the university, without providing a reason.