Experts: Penn highly capable of paying debts

Penn is the most financially stable it's been since 1998, according to Moody's Investors Service.

Moody's, which provides bond ratings for commercial and nonprofit enterprises, upgraded the University from an Aa3 rating up to an Aa2 one at the end of last month.

An Aa2 ranking is awarded when a university is at a low credit risk, meaning it is highly capable of paying back its debts.

The best rating an institution can receive is Aaa, followed by Aa1, Aa2, Aa3, A1 and so on.

This year's boost was primarily based on the University's strong financial performance and continued Health Systems improvements, according to a Moody's press release.

Executive Vice President Craig Carnaroli pointed out that these ratings are influential to financial institutions like insurance companies or mutual funds that would potentially lend money to the University.

When deciding whether to take on a university's debt, they often analyze these ratings to determine whether it's a sound move, Carnaroli said, adding that higher ratings also allow universities to obtain more-favorable rates on loans and insurance.

Moody's analysts visited campus in early January to meet with administrators and examine University finances and long-term plans.

Moody's ratings take qualitative factors beyond finances into account, Vice President for Finance and Treasurer Scott Douglass said.

Carnaroli said Moody's was impressed with the University's new facilities, like Skirkanich Hall, as well as current and upcoming initiatives.

Penn's low admissions rate and research strength were also contributing factors to the improved rating, according to the same Moody's press release.

"It's very good news for Penn," said University President Amy Gutmann, adding that Moody's has recognized all the good work the University has done over the past few years.

However, the company listed a few liabilities, too, including Penn's low endowment relative to its peers and the competition its Health Systems faces.

Douglass noted that Penn's relatively large size and structure deter a legitimate comparison with other Ivy League schools, like Harvard and Princeton, which both have Aaa ratings but - unlike Penn - do not have health systems.

"The [universities] we think of as financial peers aren't necessarily the same ones we think of academically," he said.

Moody's last evaluated Penn in 2004, when its rating climbed from A1 to Aa3.

The University Health System was upgraded from an A2 to an A1 rating in November. These increases stand in stark contrast to Penn's higher debt levels of the late '90s, when both the University's and the Health Systems's credit ratings plummeted because of the its financial struggles.

"I think we're [currently] in a very advantageous position," Douglass said.

For now, administrators say Penn is poised to take on its next financial challenges, including eastward expansion and a capital campaign to be launched this fall.

"It's a nice signal going into a capital campaign that an external agency had deemed us ready for an upgrade," Carnaroli said.

The Moody's press release listed Penn's current endowment as $5.7 billion and its total debt at $1.4 billion.

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