Moody's Investors Service said it has downgraded Atlantic City, N.J.'s underlying general obligation rating to Baa2 from Baa1, affecting $219 million of outstanding general obligation and city-guaranteed bonds.

The outlook remains negative. The outstanding debt is secured by the city's unlimited general obligation tax pledge.

The downgrade to Baa2 reflects the city's significantly reduced tax base due to ongoing casino revenue declines and sizable casino tax appeals stemming from increased competition from casinos in neighboring states.

The rating also factors in the city's substantial tax base dominated by the gaming industry (70% of assessed values), narrow financial cushion, weak residential socioeconomics and an increasing debt burden.

The negative outlook incorporates our expectation that declining casino revenues and ongoing tax appeals will continue to reduce the city's taxable base and further strain the city's weak financial position and increase its debt burden to above-average levels.

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