Moody’s: Rutgers flap is bad for the university’s credit rating

Moody’s Investor Service today called the flap surrounding former Rutgers basketball coach Mike Rice “credit negative” because it draws unwanted negative scrutiny to the school.

“These events are credit negative for Rutgers because they draw criticism from national media and public officials, raise questions about governance and management practices at the university, and strengthen the possibility of government investigations and possible legal actions.

“Like other universities that have chosen not to take quick and decisive action when confronted with inappropriate behavior by university employees, Rutgers’ initial response highlights inward-looking governance and management practices that are prevalent among U.S. universities. Questionable disclosure practices about many aspects of U.S. university operations, including scandals stemming from athletics, invites increased criticism and government regulation of universities.”

The agency said the bad press comes at a particularly sensitive time for Rutgers as it comes in the middle of the complicated restructuring of the university and as the university prepares to enter into the Big 10 athletic conference.

“Membership in the Big Ten could be transformative for Rutgers’ market position, enhancing its national exposure and increasing revenue from athletics and research,” Moody’s analysts wrote. “The increased visibility of a successful athletics programs can buoy student demand and donor support through the increased exposure and name recognition, although donor support for Rutgers is likely to wane during the investigation.”

Rutgers has drawn national attention with the scandal that began when video of Rice verbally and physically abusing players during practice sessions surfaced last week.  The video was followed by news that several university officials, including President Robert Barchi, were aware of Rice’s actions in December, but decided to suspend rather than fire the abusive coach.

Rice was immediately fired, but the delay cost Athletic Director Tim Pernetti his job because of public backlash.  Yesterday, former interim General Counsel John Wolf resigned after it was disclosed that he saw the video last year and recommended the suspension.  Wolf was first demoted but later resigned over continued outcry.

The university has not helped its cause by refusing to reveal if Wolf was paid a severance payment upon leaving the university.

Barchi has so far survived with support from Gov. Chris Christie, but yesterday Senate President Steve Sweeney called for the termination of Board of Governors member Mark Hershhorn.

The university’s Aa2 rating was already under review owing to uncertainty over the debt Rutgers will assume from the University of Medicine and Dentistry of New Jersey.

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