January 30th, 2018 at 7:13 PM ^

$1 billion potential liability hit to the balance sheet is just the beginning.  Depending on how the Title IX investigation ends up, they could lose up to $450 million a year in funding (15% of operating budget).  Either of those would certainly impact their ability to repay long-term debt. 


January 30th, 2018 at 8:26 PM ^

Actually, I expect that MSU is trying to quietly issue a bond which will cover the forthcoming damages. A credit rating review would make a lot of sense if that's their strategy.

Strategy: you issue a bond in the amount of your expected damages, push for an annuitization of the damages (courts will usually grant this request), play the arbitrage game, and it's possible to come out ok financially.


January 30th, 2018 at 10:53 PM ^

It's legal, and if you believe that you can get higher investment returns than the bond interest rate, it's a good idea. Mathematically.

The problem is that it's risky as shit: you're on the hook for the bond payments one way or another, but if you don't make your anticipated return on investments, boom, you're underwater.

So it really all depends on the bond's interest rate. Which is why it makes sense to me that MSU is undergoing a credit evaluation: I think they've asked a bond agency if they can get a big bond at a really really good rate. Meaning that MSU's income streams had better be rock solid.

Everyone Murders

January 31st, 2018 at 8:12 AM ^

A couple of questions, though.  First, how does MSU "quietly" issue a bond - especially for such a volatile issue?  It seems that you'd have to publish the bond details to any prospective bondholder, and typically the bondholder community does not enter into non-disclosure agreements.  It's "public debt" and the terms would come out.

Second, why create a damages pot prior to any judgment or settlement?  That's just ringing a dinner bell for the plaintiffs' bar.  (Not that those folks don't need to eat!) 

It seems the smarter play for MSU would be to try to get the claims certified as a class action, settle at an amount that you can survive, and then issue some bonds to cover the debt.


January 31st, 2018 at 9:04 AM ^

If MSU gets the bond first, 1) their credit will be better since they won't have the liability on the books when the bond is issues (and the rate will be better) 2) they can say it is for "building A" improvements, but once they have the money, they can redirect it towards anything they want 3) If designated for "building A", the lawyers aren't going to be able to say hey look at that pot of gold they have waiting for us (even if that is really what it is for). Pretty reasonable way to stay afloat on their part.


January 30th, 2018 at 6:59 PM ^

they're still going to be getting pre-approved offers in the mail for 0.00% APR* on a new Chase Visa 

*for 6 months, after that period interest charges of 29.99% apply to all purchases and 239% to cash advances


January 30th, 2018 at 7:07 PM ^

in the fish that squirming just causes another hook to go deeper. Engler’s selection, Izzo’s waffling, Walton's Title IX avoidance, BoT’s incompetence, OCR’s annoyance, King/Corley/Vance/Robertson trials, gymnast lawsuits, insurance counterclaims ... it won’t all miraculously disappear like usual in EL.


January 30th, 2018 at 7:29 PM ^

A downgrade of the credit rating would affect about $975 million in long-term debt. MSU's current credit rating is Aa1, the second-highest score by Moody's.

YIkes. Not sure how far it will fall but a tumble into even the Baa range would be a pretty interesting scenario for Michigan State in terms of paying on its obligations. 


January 30th, 2018 at 7:41 PM ^

for a period of time in the 2012-2015 years.  That's the comparable situation.

The agencies have a duty to review their rating, and MSU's rating likely falls a bit.  But things would have to get rather crazy for MSU's credit (public University and all) to fall even into the A2-A3 range (still "upper medium grade").

For select Michigan public Universities, the September 2016 ratings:

AAA for U-M,

Aa1 for MSU,

Aa3 for Wayne State, Oakland and CMU,

A1 for WMU, Ferris and GVSU,

and A2 for EMU.…


January 30th, 2018 at 8:26 PM ^

PSU's $250MM number included (1) the $60MM NCAA fine, (2) PSU getting very little $ from their insurance company in helping pay victims, and (3) PSU protecting the 2nd Mile from being sued when they did settle with a victim.

This MSU case has many more victims, yes.  But PSU also had the above dynamics that may not be in play for MSU.  I'm sure MSU will at least try to have insurance cover this.  Other parties beyond MSU (US Gymnastics) will get sued on this one, absolutely.

Yes - a Missouri-type situation (radically declining enrollment) is in play.  That's a definite long-term threat.  

Everyone Murders

January 31st, 2018 at 8:16 AM ^

LAS's statement on this is telling:


While I was serving as Michigan State's President the university's Moody's rating was Aa1 - about as high as a university's rating gets. This is further evidence that, political machinations aside, I was doing a great job at Michigan State. The robust Board of Trustees support I received until tendering my resignation is irrefutable evidence of my great stewardship until I decided to "take one for the team" for the betterment of the school.

A strong credit rating is essential to future borrowing activity, and a downgrade may trigger obligations under existing loan and bond facilities.  It stands to reason that any downgrade in Moody's or Standard and Poors ratings of Michigan State's creditworthiness will be a reflection that I am no longer at the helm of Michigan State.







January 31st, 2018 at 8:59 AM ^

This is an asshole move. It is not good for any tax payer in Michigan to have a billion or so in debt downgraded by the same assclowns that rated toxic mortgage securities AAA


January 31st, 2018 at 10:35 AM ^

Watching TV with my wife, seeing msu stuff she heard nassar's name. My wife mentioned several years ago that her cousin talked to her about being assaulted by Nassar! A year or so later she took the day off work (she is a few steps away from being a doctor) and drove to EL to file her report. She is currently struggling with Extreme deep depression! including suicide attempts! We as a family are rallying around her to help her get through this. Since last night's discussion I am struggling with more ANGER than just reading (seeing on tv) about these atrocities! Lord please bring Peace and healing to those that have been hurt/crushed!


January 31st, 2018 at 11:10 AM ^

This is exactly the insight that needs to stay front and center.  Women, girls, spouses, children, cousins, friends - there are thousands of people deeply hurt and affected by this situation.  A holistic, systemic solution that helps the healing and prevents reoccurrence. must be the forcus.

MSU's leadership can continue to treat it merely as a  political, finanical, power, brand issue - but the greater good has nothing to do with a group of trustees, administrators and coaches in East Lansing.  That heals nothing.


January 31st, 2018 at 12:10 PM ^

Is about as low as they will fall, if that.

Sparty has a very strong endowment along with a nice batch of way multiple millionaires all eager to get this behind them.

I would also be very suprised if they even blip down in applications, even by women and really don't believe that their enrollment will suffer in the least.

Kids will just tell themselves that they have nothing to worry about as long as they stay the hell away from scholarship athletes. They will tell themselves that because mostly it will be true and to the extent that it isn't, that's just how the mind works. A kid that has been pointing at a BIG university for 5 years or so isn't going to come off that point because the athletic department has covered up a rape scandal. And they for damn sure aren't going to think paying outstate tuition is a real good idea.

I look to Izzo and Dantonio getting tearful goodbyes after much rage and nashing of teeth, some very generous cash awards, some embarrassing headlines and then this will be just as over as it is for Penn State.