Rutgers coach abuse scandal threatens credit rating : Moody's

Reuters News
Posted: Apr 12, 2013 12:18 PM
Rutgers coach abuse scandal threatens credit rating : Moody's

By Hilary Russ

(Reuters) - The scandal over abusive behavior by the now-fired men's basketball coach at Rutgers University threatens the New Jersey school's credit rating, already under review because of uncertainty over how much debt it will assume in a merger meant to pump up its national profile.

In a comment released on Friday, Moody's Investors Service said that the firestorm surrounding a video showing verbal and physical abuse of players is a negative credit factor for Rutgers, rated Aa2 and on review for a downgrade.

The events "raise questions about governance and management practices at the university, and strengthen the possibility of government investigations and possible legal actions," Moody's said.

Rutgers fired men's basketball head coach Mike Rice after ESPN broadcast a video showing him hurling basketballs at players' heads and screaming obscenities and homophobic slurs at them.

The school is investigating how its officials handled the videos when they first came to them in November. At that time, school President Robert Barchi had subordinates view the tapes, and the school suspended and fined Rice instead of firing him.

Athletic director Tim Pernetti resigned last week, and an assistant basketball coach and the university's interim general counsel have also quit.

"Rutgers' initial response highlights inward-looking governance and management practices that are prevalent among U.S. universities," Moody's said in the comment.

"Questionable" disclosure practices about operations at any U.S. college invite criticism and government regulation, the Wall Street credit rating agency added.

The events come at a sensitive time, as Rutgers is in the midst of assimilating two medical schools as a part of a reorganization of New Jersey's public medical education system. Integration is supposed to take effect on July 1.

But the total amount of debt Rutgers will take on in relation to the move is still uncertain.

Moody's said in November that it was reviewing the school's credit rating for a possible downgrade, as it expects Rutgers to take on at least $450 million of debt in connection with the merger.

The university currently has about $1.2 billion of debt. It wants to borrow at least another $410 million - bonds approved by voters in November - in coming years for new construction projects, Moody's said.

As it seeks to boost its national profile for research, Rutgers has also been pushing athletics programs. It was admitted to the Big Ten athletic conference in 2012, a move that will bring more exposure and increased athletic revenue.

As a Big Ten member, Rutgers can also work with other prestigious members on joint research proposals, Moody's noted.

(Reporting by Hilary Russ; Editing by Vicki Allen)