Nassar Fallout Hurts Michigan State University Financial Rating

By David Jesse
Detroit Free Press
March 29, 2018

https://www.freep.com/story/news/local/michigan/2018/03/29/michigan-state-university-larry-nassar/469511002/

A financial rating firm has dropped its outlook for Michigan State University to negative as it evaluates the fallout from the Larry Nassar sexual assaults scandal.

S&P Global Ratings credit analyst Ashley Ramchandani said pending investigations into MSU, along with lots of turnover in senior leadership, sparked the change. The lowering also reflects a belief that MSU's enrollment could drop, which means less money coming into the university. The firm said it isn't sure how all the fallout will shake out.

"While management reports the hiring of additional staff and implementation of amended policies to address sexual assault prevention ... in our opinion, current campus community tension may stall prompt and equitable resolution of stakeholders' concerns," Ramchandani said.

Ratings affect the university's ability to borrow money through bonds and the interest rates it gets. The agency left the rating for current bonds unchanged.

S&P isn't the only financial rating agency looking at MSU's financial forecast.

Moody's Investor Service has placed Michigan State University's credit rating under review for a downgrade.

The agency will "assess credit risks surfacing from the conviction of former employee Larry Nassar on sexual assault charges," according to a notice filed in January by the agency. "The review will 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."

A spokesman for Moody's told the Free Press on Thursday that the review was still under way.

In a statement, interim MSU President John Engler said, “MSU is pleased that Standard & Poor’s affirmed our AA+ long-term bond rating, which is the second-highest rating you can receive. A strong bond rating shows the financial health of the university and helps our campus provide the best quality education possible for our students.

"We were not surprised by the outlook change, as the higher education industry in general is going through a leaner outlook. The decline in high school graduates, coupled with national policies that have impacted international students' abilities to seek a western education, are seen across the board, and MSU is no different in those challenges.”

More than 250 people are suing MSU and USA Gymnastics in federal court, saying Nassar, a former MSU doctor, sexually abused them and the organizations didn't do enough to protect them. Those lawsuits will return to mediation, which could lead to a settlement. A previous mediation phase was unsuccessful.

Engler has said the cost of any payouts to Nassar survivors who have filed suits will have to come either from taxpayers or students' tuition.

In the company's release, Ramchandani said, "We believe that there may be material effects on the overall enrollment and demand profile of MSU during the upcoming enrollment cycle, the degree to which currently remains indeterminate. The negative outlook further reflects our view of the potential effects of undefined financial obligations due to ongoing litigation."

Moody's downgraded Penn State University's credit rating after the sex abuse scandal involving football coach Jerry Sandusky. The Associated Press detailed the costs Penn State paid as including a $48-million “fine” levied by the NCAA against Penn State that has gone to pay for anti-child abuse efforts in Pennsylvania; $27 million in lawyer fees to defend lawsuits; nearly $14 million that includes the legal defense of three former administrators facing criminal charges for their handling of complaints against Sandusky, and $5.3 million for crisis communications and other consultants, as well as other costs.