Standard & Poor's Ratings Services said it has lowered its underlying rating on Atlantic City Board of Education, N.J.'s existing general obligation bonds to BB-minus from BBB-minus.
At the same time, it removed the rating from CreditWatch negative. The outlook is negative.
At the same time, it affirmed the A school program rating. The outlook on the program rating is stable.
"The resolution of the CreditWatch negative by lowering the underlying rating on the district to BB-minus reflects our opinion of its exposure to adverse economic and financial conditions and ongoing uncertainties, leaving it vulnerable to unanticipated deterioration of its financial position and liquidity," said Standard & Poor's credit analyst Danielle Leonardis.
"The negative outlook reflects our opinion that the district may face near-term liquidity pressures and a significant negative reserve position in fiscal 2017 resulting from a structural imbalance due to reductions in local revenue sources from an eroding tax base and ongoing stress from Atlantic City, which is responsible for levying and remitting property taxes to the district."
The A long-term rating reflects the view of the district's participation in the New Jersey Fund for the Support of Free Public Schools. The long-term rating continues to reflect the creditworthiness of the program rating.
The bonds are secured by the district's full-faith-and-GO credit pledge and further secured by the district's participation in the New Jersey Fund for the Free Public School Program.
The full faith, credit, and taxing power of the district is available for the payment of principal and interest on its GO debt. The bonds are payable from ad valorem taxes levied on all taxable real property in the district without limitation as to rate or amount.
The district continues to face revenue uncertainty, and despite efforts to right-size the budget and achieve structural balance, pressures and uncertainty remain. Some of the district's efforts have included the appointment of a state monitor in February 2015, by the Department of Education and the hiring of a full-time business administrator. However, the district relies on Atlantic City for roughly 75% of its general fund revenues. Because of the city's current liquidity concerns, tax remittances have been delayed 30 to 45 days. If the city's liquidity continues to deteriorate, it will likely pressure the school district.
