Moody's Investors Service placed Atlantic City's Ba1 general obligation bond rating under review for a possible downgrade in the wake of a delayed bond sale.
The ratings agency announced late Dec. 11 that the already junk-bond-rated decision to postpone a $140 million bond sale "poses significant budgetary, cash flow and balance sheet risk."
The bond sale was slated to finance $100 million of tax appeal funds from previous years and provide $40 million to fund tax credits that Atlantic City gave in place of property tax appeal funds for the 2014 fiscal year. The seaside city is now planning a $40 million note sale instead by the end of the year and is looking to sell the other $100 million of bonds during 2015.
Moody's analysts Josellyn Gonzalez Yousef and Julie A. Beglin said the fiscal 2014 budget relies on market access to the $40 million of notes and roughly $32 million of tax lien proceeds from unpaid Revel Casino property taxes. These revenue sources not coming in as planned could lead to Atlantic City facing a $70 million shortfall, which accounts for 27.6% of the city's budget.
"Our review will consider the city's immediate liquidity challenges and its ongoing cash flow needs relative to obligations," analysts said in the Moody's report. "The review will also consider final 2014 financial results and what plans the city puts in place to address the fiscal 2015 budget gap."
Moody's review will also take into account further unresolved casino property tax appeals, the results of tax lien sales as well as likely additional borrowing needed to provide required current and future tax appeal refunds. Bills being considered by the New Jersey State Legislature that may provide relief to Atlantic City will also be considered, according to Moody's.
Moody's said on Nov. 24 that Brookfield Partners LP rescinding on an offer to purchase the closed Revel Casino on Nov. 19 five days after the Trump Taj Mahal filed court papers to close in December was a credit negative for Atlantic City. In July, Moody's cut Atlantic City's rating to Ba1, a non-investment grade, from Baa2.
