Penn State receives stable outlooks from credit rating agencies

April 29, 2020

UNIVERSITY PARK, Pa. — Reports released by Moody’s Investors Services and S&P Global Ratings gave Penn State’s credit rating a stable outlook, even as the University navigates challenges presented by the ongoing coronavirus pandemic. 

Moody’s assigned the University an Aa1 stable rating, while S&P assigned Penn State an AA long-term rating with a stable outlook. 

In its analysis of Penn State, Moody’s said its Aa1 stable rating reflects the University’s position as a nationally recognized public institution with a vast  research portfolio. The report said, “Penn State’s excellent strategic positioning captures its favorable student demand, expansive and highly diverse research portfolio and solid philanthropic support.” 

Moody’s lauded Penn State’s financial strategy, debt management and revenue diversity as major contributors to its stable rating, including, “Consistently favorable operating performance and debt affordability, aided by strong financial oversight provided by a highly effective administrative team and board.” 

Moody’s cited the University’s recent measure to pre-fund its pension obligation to the State Employees’ Retirement System as one effective example of managing costs, as well as leadership displayed by the Penn State Board of Trustees. It stated, “Penn State’s governance structure is a credit strength. … As evident in the university’s superior debt, liquidity and financial performance, fiscal oversight and management remain strong. The board’s formalized approval process around multi-year budget and capital forecasts, as well as the required identification of funding sources prior to board approval to proceed, reflects sound policies and procedures.” 

The agency also highlighted the growing Penn State Health system as part of the University’s revenue diversity contributing to the overall stable outlook. 

S&P’s report said, “The long-term rating reflects our view that (Penn State’s) enterprise profile is extremely strong while its financial profile is very strong … The extremely strong enterprise profile reflects (Penn State’s) firm enrollment trend, despite some recent evidence of softening in undergraduate demand, broad programming offerings and role as the state’s flagship public university.” 

S&P also noted the University’s management efforts, stating, “The very strong financial profile reflects (Penn State’s) healthy financial management policies, recurring positive operating performance due in large part to the health finances of its medical school and affiliated Penn State Health medical system pre-COVID-19 pandemic and excellent financial resources and moderate pro forma debt burden.” 

“We’re pleased that both Moody’s and S&P have continued to recognize Penn State’s long-term financial strategies and the efforts our leadership has made to responsibly manage the University’s financial resources,” said Joe Doncsecz, Penn State associate vice president for finance and corporate controller. 

Both reports acknowledged the short- and long-term issues posed by the global coronavirus, including operational and financial disruptions caused by the pandemic, as well as impacts to student enrollment.  

The University has projected revenue losses excess $100 million, including prorated refunds of spring semester room and board fees. 

 “In our view, the full financial impact of COVID-19 cannot be quantified at this time,” S&P stated. “Fiscal 2021 performance could be more severely impaired, depending upon the trajectory of the virus and its effect on operations.” 

The agency concluded, “We recognize Penn State has taken prudent measures to address the current situation and continues to monitor the pandemic, and is evaluating additional measures that could be taken to protect the health of the Penn State community and promote its core mission of academics and research. We believe Penn State’s health balance-sheet strength and liquid resources will help the institution offset medium-term pressure that might arise as an effect of the pandemic.” 

David Gray, Penn State’s senior vice president for finance and business, said, “The University has been both strategic and proactive in its response to an unprecedented crisis.  While the challenges of COVID-19 are unparalleled and yield many uncertainties, Penn State’s solid foundation of financial and other organizational assets has seen us through difficult challenges before and will enable us to weather this crisis as well.” 

 

Last Updated April 29, 2020