S&P Global Ratings has lowered its rating on Atlantic City, N.J.'s general obligation (GO) debt to 'CC' from 'CCC-'. The outlook is negative. The rating action resolves the CreditWatch Developing that we placed on the rating on Jan. 22, 2016.
"The downgrade reflects our opinion that a default or debt restructuring appears to be a virtual certainty even under the most optimistic circumstances," said S&P Global credit analyst Timothy Little.
In our opinion, while the city may receive extraordinary support from the state government, we are not confident that it will prevent a default or debt restructuring that would impair bondholders. While the city was able to meet its May 1 debt service requirements, payments on subsequent issues are, in our opinion, highly vulnerable to nonpayment. We also view the city's ability to meet its financial commitments in the long term to be unsustainable.
We will continue to monitor the city as subsequent debt service payments come due and to evaluate whether events transpire that affect our opinion of its credit profile.
"The negative outlook reflects our opinion that there is at least a one-in-three likelihood that we could lower the rating over the next year due to the uncertainty as to whether the city has the ability to meet its financial obligations when due," added Mr. Little. Since the release of the Emergency Manager's 60-day report in March 2015, bonded debt deferrals have been a possible course for the city. We view payment on future obligations to be highly vulnerable to nonpayment and that a default or debt restructuring is a virtual certainty. In our opinion, while extraordinary state intervention may occur, we are not confident that it would prevent a payment default or debt restructuring.
