Moody's Downgrades Atlantic City to Ba1

Moody's Investors Service has downgraded Atlantic City's (NJ) underlying general obligation rating to Ba1 from Baa2, affecting $245 million of outstanding general obligation parity debt. The outlook remains negative. The outstanding debt is secured by the city's unlimited general obligation tax pledge.

The downgrade to Ba1 reflects the city's significantly weakened tax base, revenue-raising ability, and broader economic outlook. These result from ongoing casino revenue declines, expected near-term casino closures, and the impact of sizable casino tax appeals, all of which has stemmed from increased competition from casinos in neighboring states. The rating also factors in the city's still-substantial tax base dominated by a pressured gaming industry (nearly 70% of assessed values), narrow financial cushion, very weak residential socioeconomics and an increasing debt burden.

The negative outlook incorporates our expectation that regional competition for casino gaming will further weaken Atlantic City casino revenues, and that tax appeals and casino closures will continue to reduce the city's taxable base and strain the city's weak financial position. The outlook also considers the city's above-average debt burden in light of significant new debt issuance plans to fund recently settled tax appeals.

The negative outlook incorporates our expectation that regional competition for casino gaming will further weaken Atlantic City economic prospects. Declining casino revenues and pending tax appeals will continue to reduce the city's taxable base and strain the city's weak financial position. The outlook also considers the city's above-average debt burden in light of significant new debt issuance plans to fund ongoing tax appeal settlements.

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