NEW YORK (Standard & Poor's) March 17, 2015-- Standard & Poor's Ratings
Services assigned its 'AA' long-term rating to Pennsylvania State University's
(Penn State) $200 million series 2015 bonds. At the same time, we affirmed our
'AA' long-term ratings on various series of existing bonds also issued for
Penn State. The outlook on all ratings is stable.
In addition, we affirmed our 'A-1+' short-term rating on the university's
series 2009B variable-rate demand bonds (VRDBs), currently supported by
self-liquidity. Total outstanding debt at fiscal year end June 30, 2014, is
$981.5 million and with the $75 million of new money debt that is part of the
series 2015 issuance will nudge pro forma debt to $1.06 billion.
"The long-term rating reflects our view that governance and management
continue to improve following events that began unfolding in fall 2011 related
to child sexual abuse committed by Gerald A. Sandusky--a former athletic
department official," said Standard & Poor's credit analyst Ken Rodgers. "Also
contributing to the improvement are a stable to slightly improving enrollment
trend, good revenue diversity with slightly more than a quarter of revenue
coming from Penn State Hershey Health System Inc., and very strong financial
performance with strong financial resources for the rating and modest debt."
In addition, Penn State in our view has very strong philanthropic support,
having raised $2.2 billion in a campaign that closed at the end of fiscal
2014, exceeding its $2 billion goal. Penn State's cash and investments at
fiscal year-end 2014 total $6.7 billion.
The series 2015 bonds are secured by Penn State's general obligation pledge,
which is fairly broad in our view and tantamount to a pledge of unrestricted
student fees. We understand series 2015 bond proceeds will current refund the
series 2004A and 2005 bonds that total $131.6 million ; fund $75 million in
new money borrowing for several projects, the largest of which is new data
centers at the University Park and Hershey campuses; and fund issuance costs.
The stable outlook reflects our assessment that Penn State's improved
governance and management, slightly increasing enrollment trend, very strong
financial performance and strong expendable resources and modest debt burden
should enable it to maintain the rating at its present level for the next two
years while still facing several credit challenges--the most uncertain of
which may be the financial exposure to further legal settlements, ongoing
litigation, and compliance costs.
A lower rating, while not anticipated, is possible if additional litigation,
fines, or other adverse developments occur resulting in a decline in financial
performance or expendable resources become insufficient to support the rating.
Further, if enrollment unexpectedly declines or debt increases significantly
these events could also pressure the rating.
A positive rating action during the two-year outlook period is unlikely, in
our view, due to the university's continued challenges.
RELATED CRITERIA AND RESEARCH
Related Criteria • USPF Criteria: • USPF Criteria: • USPF Criteria:
Commercial Paper, VRDO, And Self-Liquidity, July 3, 2007
Contingent Liquidity Risks, March 5, 2012
Higher Education, June 19, 2007
Related Research
• Alternative Financing: Disclosure Is Critical To Credit Analysis In
Public Finance, Feb. 18, 2014
• Standard & Poor's Reclassifies 157 U.S. Public Universities; They Are No
Longer Government-Related Entities, Dec. 5, 2014
Complete ratings information is available to subscribers of RatingsDirect at
www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by
this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com.
Services assigned its 'AA' long-term rating to Pennsylvania State University's
(Penn State) $200 million series 2015 bonds. At the same time, we affirmed our
'AA' long-term ratings on various series of existing bonds also issued for
Penn State. The outlook on all ratings is stable.
In addition, we affirmed our 'A-1+' short-term rating on the university's
series 2009B variable-rate demand bonds (VRDBs), currently supported by
self-liquidity. Total outstanding debt at fiscal year end June 30, 2014, is
$981.5 million and with the $75 million of new money debt that is part of the
series 2015 issuance will nudge pro forma debt to $1.06 billion.
"The long-term rating reflects our view that governance and management
continue to improve following events that began unfolding in fall 2011 related
to child sexual abuse committed by Gerald A. Sandusky--a former athletic
department official," said Standard & Poor's credit analyst Ken Rodgers. "Also
contributing to the improvement are a stable to slightly improving enrollment
trend, good revenue diversity with slightly more than a quarter of revenue
coming from Penn State Hershey Health System Inc., and very strong financial
performance with strong financial resources for the rating and modest debt."
In addition, Penn State in our view has very strong philanthropic support,
having raised $2.2 billion in a campaign that closed at the end of fiscal
2014, exceeding its $2 billion goal. Penn State's cash and investments at
fiscal year-end 2014 total $6.7 billion.
The series 2015 bonds are secured by Penn State's general obligation pledge,
which is fairly broad in our view and tantamount to a pledge of unrestricted
student fees. We understand series 2015 bond proceeds will current refund the
series 2004A and 2005 bonds that total $131.6 million ; fund $75 million in
new money borrowing for several projects, the largest of which is new data
centers at the University Park and Hershey campuses; and fund issuance costs.
The stable outlook reflects our assessment that Penn State's improved
governance and management, slightly increasing enrollment trend, very strong
financial performance and strong expendable resources and modest debt burden
should enable it to maintain the rating at its present level for the next two
years while still facing several credit challenges--the most uncertain of
which may be the financial exposure to further legal settlements, ongoing
litigation, and compliance costs.
A lower rating, while not anticipated, is possible if additional litigation,
fines, or other adverse developments occur resulting in a decline in financial
performance or expendable resources become insufficient to support the rating.
Further, if enrollment unexpectedly declines or debt increases significantly
these events could also pressure the rating.
A positive rating action during the two-year outlook period is unlikely, in
our view, due to the university's continued challenges.
RELATED CRITERIA AND RESEARCH
Related Criteria • USPF Criteria: • USPF Criteria: • USPF Criteria:
Commercial Paper, VRDO, And Self-Liquidity, July 3, 2007
Contingent Liquidity Risks, March 5, 2012
Higher Education, June 19, 2007
Related Research
• Alternative Financing: Disclosure Is Critical To Credit Analysis In
Public Finance, Feb. 18, 2014
• Standard & Poor's Reclassifies 157 U.S. Public Universities; They Are No
Longer Government-Related Entities, Dec. 5, 2014
Complete ratings information is available to subscribers of RatingsDirect at
www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by
this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com.
