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U Of L Could Lose Bond Rating In Wake Of Hoops Scandal

University of Louisville
J. Tyler Franklin
University of Louisville

The University of Louisville and its foundation could see their credit ratings pummeled as the basketball scandal's fallout continues.

This week, the bond rating agency Moody's Investors Service announced the university is under review for a possible downgrade, citing “recent criminal allegations against senior athletic personnel” and concerns over the university's finances. Moody’s already downgraded U of L a notch last year to A1, citing instability in leadership and financial concerns.

Investors and lenders use the ratings to determine U of L’s credit worthiness. The agency warned in its announcement that U of L's rating could drop several more notches after this review, which will consider the lack of permanent leadership and whether Louisville is maintaining the confidence of donors and stakeholders.

No one from U of L has been charged criminally. But the university has started the process of firing basketball coach Rick Pitino and athletic director Tom Jurich is on indefinite leave in the wake of the FBI investigation made public last Tuesday.

According to Moody’s, the allegations “have the potential for increased financial burden on a currently weakened university liquidity profile.”

Moody’s estimated the university’s current liquidity at about $80 million of unrestricted cash. Terminating Pitino’s contract alone exposes the university to payments of up to $44 million, if they are unsuccessful in proving he was fired “for cause.”

(Read: " If Pitino And Jurich Leave U of L, School Likely On Hook For Payouts")

The agency will also review the U of L Foundation, whose rating plummeted three notches last year to A3. Moody’s cited the foundation’s audit, excessive spending and a significant drop in cash and investments in making the move last year.

The foundation has lowered its spending policy and taken initial steps to clean up the foundation’s finances in the wake of the audit that found secret spending, overpayment of real estate and lavish pay for executives.

This time, Moody’s said its review of the foundation is based not on its own finances, but on its ties to U of L -- and the “adverse reputational impact” it will likely suffer under this newest scandal.

Keith Sherman, interim executive director of the U of L Foundation, pointed out that Moody's most recent review, in July, ended without a change in the foundation's rating -- a signal that reform efforts were working. He said a downgrade would have no practical impact on the foundation as it doesn't intend to borrow any money or issue bonds in the near future.

"I think it’s a tenuous nexus between the news in athletics and the stability of the foundation," Sherman said. "Our reforms make clear we’ll spend what we can afford to spend."

U of L spokesman John Karman said in an email that the university looks forward to meeting with Moody’s representatives "to review the positive steps we’re taking to improve our financial position, as well as to showcase our campus and related activities.”

Kyeland Jackson contributed to this story. Kate Howard can be reached at  khoward@kycir.org and (502) 814.6546.

Disclosures: In 2015, the University of Louisville, which for years has donated to Louisville Public Media, earmarked $3,000 to KyCIR as part of a larger LPM donation. University board member Sandra Frazier and former member Stephen Campbell have donated. 

This story has been updated.

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