Moody's Investors Service recently upgraded Penn's bond rating, citing the University's fiscal strength and strategic planning efforts. The University Health System maintained its previous rating.
Moody's, a nationally recognized group that provides bond ratings for universities, upgraded Penn's rating from A1 to Aa3, a move which will allow the University to borrow money at lower interest rates. The rating indicates a strong assessment of Penn's financial standing.
"It's wonderful," University President Judith Rodin said of the increase. "In the short term, it enables us to reduce the cost of credit on our existing debt, and we're always restructuring our debt depending on what interest rates are like as new debt pools come on, so that's a great benefit."
Moody's last changed Penn's rating in 1999, when it was lowered from Aa3 to A1.
University Board of Trustees Chairman James Riepe also noted that Penn's return to the Aa3 rating will directly benefit the University. "Ultimately, how this impacts us is that a higher rating allows you to borrow at a lower interest rate," Riepe said.
However, Riepe said he was pleased with the content of the report more than its outcome.
"My interest is not so much the rating itself as why they changed the rating," Riepe said. "They recognize how much progress we've made. ... That to me is the really good news, not just the increase in rating."
Moody's observed Penn's strong fundraising performance, which will help implement Penn's newest strategic plan.
In addition to Penn's comprehensive planning efforts, Moody's also cited the University's diversified portfolio, decreased outlook for debt and high demand in the educational marketplace.
According to a press release from Moody's, the group "believes that the University's sophisticated and comprehensive strategic planning process has helped establish a vision which will lead to continued academic excellence and financial stability over the next decade."
University officials said that Moody's uses a variety of criteria to determine Penn's financial status and ability to repay debt.
"There are no single factors that contribute to any one rating," University Treasurer and Senior Vice President for Finance Craig Carnaroli said. "But in general, there's a lot more emphasis put on balance sheet strength and reputation of the University."
Though Penn's rating is strong, it remains low compared to the rest of the Ivy League.
"The other Ivies are still rated higher than us, but it's important to point out that generally probably with the exception of Cornell [University] they all have larger endowments, and they also don't own their own health care systems," Carnaroli said. "We're a more diverse and complex enterprise, and we have a slightly different risk profile."
Though the Heath System which maintains its A3 classification also receives its own rating, it plays a key role in determining Penn's overall financial strength.
Despite the Health System's improved performance in recent years, "the financial difficulties of the late '90s are still reflected on their balance sheets," Carnaroli said. In addition, the Health System continues to face the "extremely competitive" Philadelphia health care market, he added.
Though it may not be faring as well as the other Ivies, Penn's rating remains strong. The University's Aa3 rating is still at the top of the "Investment Grade" category,making the jump from "upper-medium grade" to "high grade."
Finance professor Marshall Blume said that Penn's rating is strong and that though the University could improve its rating, any further increase would not be especially advantageous.
"They could do it, but there's no point in doing it,"Blume said. "If they went to a triple-A rating [Moody's highest rating], the differences in borrowing costs would be trivial."
Moody's monitors each entity it rates and performs an extensive review every three to five years, Carnaroli said.
