Atlantic City EM's Report Prompts S&P Review

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Standard & Poor's is reviewing its Atlantic City, N.J. BB bond rating in response to a report from the city's emergency manager indicating possible debt payment delays this year.

The ratings agency announced on March 25 that its rating for the struggling New Jersey city could be lowered to the CC category if the review determines that debt restructuring or refinancing options cited in emergency manager Kevin Lavin's 60-day interim report released a day earlier would have a "detrimental impact on bondholders."

Lavin's report did not mention bankruptcy, but suggested "shared sacrifice" options for bondholders including possible deferrals in debt service payments that could occur during the 2015 fiscal year.

S&P dropped Atlantic City to a junk-bond level rating from BBB-plus on Jan. 27 and placed it on credit watch with negative implications five days after New Jersey Gov. Chris Christie appointed Lavin as emergency manager to oversee the city's finances and daily operations. S&P said it expects to review Atlantic City's credit watch placement in the next 30 days.

Lavin announced in his report he would be appointing mediators to work with key stakeholders including union leadership and casino representatives in an attempt to work toward a financial solution from April 1 to June 30. Atlantic City is currently tasked with trying to plug a projected $101 million budget gap, which Lavin warns could turn into a $393 million cumulative deficit in five years absent significant changes.

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