Penn’s credit is OK despite bad economy

Despite recent downgrades in credit ratings across universities, Penn remains unscathed.

Penn has retained its original ratings of AA+ from Standard & Poor’s Ratings Services and Aa2 from Moody’s Investor Service that it earned last year.

Last week, credit ratings of numerous colleges — including Dartmouth and Bard Colleges ­— declined due to waning endowment values and other financial issues, said Executive Vice President Craig Carnaroli.

“Many of our Ivy peers place [their endowments] as a bigger part of their budget,” Carnaroli said. “Therefore with a decline comes a much bigger ripple effect.”

Penn’s endowment only composes 9 percent of its budget.

Therefore, even though Penn’s endowment dropped 19.4%, its credit ratings remains stable, Vice President and Treasurer Stephen Golding said.

“We watch the budget very closely and our trustees are intent that we are in a good cash position,” he added. This allows Penn to maintain a relatively strong financial state, even as the economy tumbles into a downward spiral.

Because Penn is in a relatively solid financial position, Golding added that students should not worry about their financial aid packages.

Dartmouth’s endowment, on the other hand, makes up 35 percent of its total budget, according to its budget communications Web site.

Dartmouth did not return requests for comment.

Schools that place their endowments as a big factor in their budget are forced to quickly liquidate their assets or borrow money in order to cover operating costs as the endowment dwindles, Carnaroli explained.

In turn, the schools’ credit ratings fall, which may hurt incoming students with financial needs.

Although some universities’ credit has worsened, Standard & Poor’s Ratings Services voiced an optimistic outlook.

According to a report published by the company, “[d]espite the challenges facing the industry … Standard & Poor’s Ratings Services believes that the long-term credit fundamentals of many rated higher education institutions will remain strong, even though there may be some deterioration in credit quality,”

However, S&P;’s Ratings Services does predict some spending cuts as budgets tighten.

“Depending on the performance of the investment markets and length of the recession, we believe that institutions might make more extreme cuts to maintain institutional financial balance,” the rating service wrote.

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