Penn State University: Penn State’s credit remains strong, say latest ratings from Moody’s, S&P

Penn State remains on strong fiscal footing despite the financial challenges presented by the COVID-19 pandemic, according to recent reports from Moody’s Investors Service and S&P Global Ratings.

Both firms have given Penn State’s credit rating a stable outlook, with Moody’s maintaining the University’s Aa1 stable rating in an April 28 analysis and S&P again assigning the University its AA long-term rating with a stable outlook on April 25. The ratings, which are the second-highest offered by each firm and on par with many peer research universities, reflect Penn State’s good financial standing and creditworthiness.

“These ratings are indicative of Penn State’s commitment to sound fiscal management and speak to the power of the University’s brand and performance,” said Sara Thorndike, Penn State senior vice president for Finance and Business/treasurer. “We are pleased that both Moody’s and S&P have recognized our work to responsibly manage the University’s resources, which has Penn State positioned for continued success.”

In its report, Moody’s said Penn State’s Aa1 stable rating “reflects its excellent brand and strategic positioning as a flagship land-grant university,” adding that the University’s “strong educational and clinical reputation will continue to support favorable demand and mitigate demographic and competitive challenges.”

In addition to its strong brand and strategic positioning, Moody’s indicated that Penn State’s credit strengths include its substantial scale and liquidity, providing for extensive financial flexibility and the capacity to manage through business disruption; consistently favorable operating performance, providing strong resources for reinvestment and reflecting excellent financial policy and strategy; and excellent revenue diversity and predictability, partly derived from the strength of the University’s operating environment and philanthropy.

Similarly, S&P’s report highlighted Penn State’s strong enterprise and financial profiles, counting the University’s relatively stable long-term enrollment trends, broad programmatic offerings, role as the state’s flagship public university, large research base, successful fundraising, positive financial operating margins, and historically good revenue diversity among the factors contributing to its AA long-term rating.

S&P also lauded the University for its financial management during the COVID-19 pandemic. “We believe Penn State’s healthy balance-sheet strength and liquid resources have helped it offset some of the pressure that arose because of the pandemic,” the ratings agency reported.

Moody’s and S&P did note several credit challenges for Penn State, with both firms pointing to unfavorable demographics for graduating high school seniors in Pennsylvania and heightened competition as potentially creating enrollment pressures for the University and straining net tuition revenue growth — a problem shared across the commonwealth’s higher education landscape. Moody’s also listed the University’s exposure to the health care sector in a competitive regional market, and S&P cited ongoing senior leadership transitions and searches, limited growth in state funding for higher education, and a constrained revenue environment for federal research support, as additional credit challenges.

The S&P report goes on to say that the University’s stable outlook “reflects our view that Penn State’s enrollment trend should improve slightly, financial operating margins remain positive, expendable resources remain quite healthy, and any additional debt issuance will be accompanied by a commensurate increase in expendable resources,” while Moody’s added that Penn State’s “outsized scale and excellent revenue diversity support the long-term durability of the operating model by providing significant operational flexibility.”

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