The $73 million bridge loan agreement between Atlantic City and New Jersey is a credit positive for the financially-strapped gambling hub since it likely ensures full bondholder payments for the remainder of 2016, according to Moody's Investors Service.
Moody's analyst Douglas Goldmacher said in an Aug. 11 report that without the loan there was a "high probability" Atlantic City would have defaulted on its debt in the next few months. The city, which has until early November to form an acceptable five-year recovery plan to avoid state intervention, has $18.1 million in debt service payments owed for the rest of the year, which Goldmacher notes should be now be paid as a result of the loan.
"While this risk remains, the loan should buy the city time to complete its financial turnaround plan which is due in November," said Goldmacher. "The loan also guarantees that the school district will continue to receive its full property tax payment from the city, a major source of concern for the district and a major burden for the city, which collects and guarantees the payments from its own tax levy."
Goldmacher said the loan contains some "very tight conditions" with the city pledging for repayment to the state certain revenue streams and assets that include Atlantic City Alliance and investment alternative tax funds owed to the city. The state also reserves the right under the loan agreement to withhold state aid and force the city to sell its municipal water system and the former Bader Field airport property if necessary. A portion of the loan funds have already been spent or pledged.
The loan requires that the city repay the school district $8.5 million that the state provided to cover its July tax levy. The city also has to pay $9.8 million owed to the school district for its first payment of the fiscal 2017 year and needs to cover other post-employment benefits and pensions.
Goldmacher said a shrinking casino industry keeps Atlantic City in a "dire" financial position. The Trump Taj Mahal, which employed 1,805 workers as of June 30, is planning to close on Oct. 10 leaving the city with only seven remaining gambling facilities. A rescue package approved by the state enables casinos to collectively make payments in lieu of taxes for 10 years, but the city hasn't determined yet how the PILOTs will be divided.
"Although we expect other casinos in Atlantic City will capture a portion of the Trump Taj Mahal's revenue, citywide gambling revenue is likely to decline, said Goldmacher. "This, in turn, could have a knock-on effect on the city as the casinos' payments in lieu of taxes (PILOT) can fluctuate depending on total casino revenues."
