Moody’s places UofL and foundation on review for potential downgrade, citing latest basketball scandal

Rick Pitino (left) at June 15 press conference reacting to NCAA penalties related to the escort scandal, next to interim UofL President Greg Postel (right) | Screenshot of video by Peter Champelli

Moody’s Investors Services has placed the University of Louisville and its foundation under a new review for a possible downgrade, citing in part the potential negative effects from the newest bombshell scandal of its men’s basketball program, which is alleged by federal prosecutors to have been part of a scheme to bribe recruits into attending the school.

The university and the UofL Foundation had already been placed under review by the credit rating agency in July — along with seven other public universities in Kentucky — when it downgraded the state’s credit rating, but Moody’s ended that initial review on Tuesday by affirming the rating of both.

However, Moody’s lead analyst Mary Cooney wrote that a new review of a potential downgrade for UofL would now be in place due to newly developing credit issues, “including recent criminal allegations against senior athletic personnel,” which have “the potential for increased financial burden on a currently weakened university liquidity profile.”

In addition to the basketball scandal potentially increasing the financial burden of the university, Cooney added that UofL’s current weak liquidity and “questions surrounding integration risk and funds flow” resulting from UofL regaining management of University Hospital from KentuckyOne Health this summer further supports placing the university under review.

Moody’s also vaguely referred to UofL’s turmoil and dramatic changes in leadership over the past year and a half, with Cooney writing that “timing and intention for installing permanent leadership, along with an assessment of sustainable remediation of ongoing governance concerns, will also be incorporated into the review.”

This week, accrediting agency SACS issued a draft report on UofL’s efforts to end the probation that it was placed under last December, stating that the university was now in compliance with seven of the nine principles it was accused of potentially violating. One of the remaining principles at issue is the large number of high-level administrative positions at UofL that are currently held on an interim basis, and whether the employees in those positions are properly qualified.

While acknowledging the regional and academic importance of the university, Cooney added that “adverse impacts from the confluence of these governance, legal, operational and financial risks could put multiple notch downgrade pressure on the ratings.”

The UofL Foundation that manages the university’s roughly $730 million endowment is also under a review for downgrade due to the potential for “adverse reputational impact” that “results in loss of donor confidence, and/or any reduction in its ability, or willingness, to support to the university.”

Standard and Poor’s had already downgraded the UofL foundation in August, citing its “significant management and board turnover,” and the scathing forensic investigation of its activities during the administration of former President James Ramsey, which had “affected confidence in the foundation’s historical financial transparency and caused decreases in both foundation gifts and overall fundraising at the university.”

Not mentioned in the Moody’s report is potential financial fallout related to the KFC Yum! Center, whose main tenant is the UofL basketball team. The Louisville Arena Authority that manages the construction bond debt of the arena is currently attempting to refinance those bonds — following recent actions by city government, state government and UofL to increase their financial obligations in order to prevent a looming default — but is challenged by the uncertainty of the team’s future.

The ability to make future debt payments could be harmed by a decrease in attendance if the team loses support, or, in the worst case, decimated if the NCAA gives UofL the so-called death penalty — in which the team is suspended from playing for one or more years.

Federal prosecutors in New York allege that at least two UofL basketball coaches were involved with criminal defendants in a scheme to bribe at least two recruits into attending the school. UofL interim president Greg Postel placed both head coach Rick Pitino and athletic director Tom Jurich on administrative leave the day after the indictments were announced last week, and has already hired interim replacements to fill those positions.

UofL spokesman John Karman told IL in a statement that the university “looks forward to meeting with representatives from Moody’s to review the positive steps we’re taking to improve our financial position, as well as to showcase our campus and related activities.”

This story has been updated.