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Moody's Lowers Credit Rating for Pennsylvania State College System

BY: | Pennsylvania | October 25, 2012



Moody's Investors Service has downgraded the State System of Higher Education's long-term credit rating, citing challenges from declining enrollment and slumping state support to its limited ability to curb labor costs and its escalating construction debt.

The downgrade to Aa3 from Aa2 on the system's outstanding revenue bonds issued through the Pennsylvania Higher Educational Facilities Authority affects $1.5 billion of what Moody's says is pro-forma debt totalling $2.36 billion. It follows a downgrade of the commonwealth's credit rating in July to Aa2 from Aa1.

The system has nearly 115,000 students at its 14 state-owned universities, including California, Clarion, Edinboro, Indiana and Slippery Rock in Western Pennsylvania.

A downgrade can mean higher borrowing costs if investors perceive system bonds as carrying somewhat more risk. Moody's said the system's rating outlook is stable.

Kenn Marshall, a State System spokesman, said Wednesday the action is not a surprise given the state's rating was lowered, and he said even with the downgrade the system's rating is strong. "A slight downgrade like this I don't think will have a significant impact on our ability to borrow if and when we decide to borrow funds again," he said.

Moody's noted political limitations on the State System's ability to raise tuition and fees, "pervasiveness of system labor unions" as a hindrance to spending curbs and growing burden from pensions and other post-retirement costs of $864 million.

Moody's also noted growing debt "driven largely by privatized student housing debt issued for replacement student residences."

The Pittsburgh Post-Gazette this month reported the system's debt had doubled in a decade, not counting those privatized loans that Moody's says the system could be called upon to back.

Moody's also alluded to the ongoing contract dispute with faculty.

(c)2012 the Pittsburgh Post-Gazette


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