Atlantic City is now starring at a possible default by early October after New Jersey's Local Finance Board rejected the distressed city's request for a reprieve after violating a term of a $73 million bridge loan.
The Division of Local Government Services has notified Atlantic City of its violation on the late July loan terms and said it has 10 days "to cure the breach to come into compliance with the agreement," Tammori Petty, a spokeswoman for the New Jersey's Department of Community Affairs said in a statement Friday. The city was informed of the decision on Thursday and faces an Oct. 3 deadline to comply, according to Petty. Mayor Donald Guardian asked the state last week for a reprieve after the city council failed to agree to meet one of the terms in the loan agreement: dissolving the Atlantic City Municipal Utilities Authority by Sept. 15.
If Atlantic City is unable to avert a default on the loan by Oct. 3, the state can demand full repayment of the $73 million as well as withhold state aid. The state would also be able to seize the MUA or Atlantic City's old airport property, Bader Field, as collateral. The city agreed to the bridge loan terms in order to avoid defaulting on a $3.4 million debt payment that was owed Aug. 1.
"Regardless of the state's reaction, Atlantic City's inability to meet its loan covenants is a credit negative and indicative of the city's severe fiscal distress," Moody's Investors Service analyst Doug Goldmacher said in a statement. "It also brings the city closer to a potential state takeover."
Atlantic City nearly averted a default in late May when state lawmakers approved a rescue package giving the city 150 days to deliver an acceptable five-year financial turnaround plan. If the plan is not approved by the early November deadline, state intervention kicks in with the Local Finance Board then empowered to alter debt and municipal contracts.
Atlantic City is rated Caa3 by Moody's and CC by S&P Global Ratings. The city is saddled with $240 million in bond debt and owes $170 million in tax refunds to the Borgata Casino Hotel & Spa. It faces debt service payments of $9.4 million on Nov. 1 and $7.3 million for December.
"We continue to focus on putting together the 150 day plan," Guardian's chief of staff, Chris Filiciello, said in a statement Friday. "If we are given the time to complete and present it, we know it will be the best plan to move Atlantic City forward while still maintaining our local sovereignty."