Atlantic City's already junk-level general obligation debt rating was slashed four notches to CCC-minus from B by Standard & Poor's late Friday, citing a "near-term liquidity crisis."
The super downgrade came three days after New Jersey Gov. Chris Christie rejected an Atlantic City rescue package approved in the state legislature prompting Mayor Donald Guardian to announce he is considering filing for bankruptcy. S&P analyst Timothy Little noted that the city faces "potentially negative cash flow" around April 1 unless the state steps in with financial assistance. The Jersey Shore gambling hub was also placed on credit watch developing.
"A default, distressed exchange, or redemption appears to be inevitable within six months, absent unanticipated significantly favorable changes in the issuer's circumstances," Little said in a statement. "The city is currently vulnerable to non-payment on its obligations and we believe it is likely to default without an unforeseen positive development."
S&P placed the city on CreditWatch Developing. A CCC-level rating is "currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments," according to the rating agency.
Atlantic City officials have scheduled a city council meeting Tuesday to discuss the possibility of filing for bankruptcy, which would require state approval. New Jersey Senate President Steve Sweeney, D-Gloucester, has argued against bankruptcy and is pushing for instead for a state takeover of Atlantic City operations.
The package of bills vetoed by Christie included legislation that would have allowed the city's eight remaining casinos enter into a payment-in-lieu of taxes program for 15 years and aggregately pay $120 million annually over 15 years through PILOTs instead of a traditional property tax. The city's 2015 budget adopted in late September relied on $33.5 million in anticipated revenues from redirected casino taxes included in the rescue bills to plug a $101 million deficit.
Little noted that New Jersey has a strong history of state oversight and intervention with distressed municipalities that provides potential for help from Trenton to prevent an "impending liquidity crisis." He said the triple-C minus rating could be raised if Atlantic City can achieve enough interim financing where a payment default is not considered inevitable within six months. The rating could also be dropped another notch to CC should the city indicate it will likely miss a debt payment or file for bankruptcy, according to Little.
Atlantic City is rated Caa1 with a negative outlook by Moody's Investors Service.
