Moody's Investors Service placed Atlantic City's junk-level Caa1 credit rating under review for a possible downgrade citing the chance of "bondholder impairment" from looming New Jersey legislation.
The review, announced Friday, comes three days after New Jersey Gov. Chris Christie announced that new bills would be introduced in February to give the state a five-year power over Atlantic City finances that involve the ability to restructuring municipal debt. The plan, unveiled jointly by Christie, Atlantic City Mayor Donald Guardian and State Senate President Steve Sweeney, D-Gloucester, came just prior to an emergency city council meeting that had been scheduled that day to discuss seeking bankruptcy protection.
"We expect the state legislature to develop a plan that will specify the powers to be granted to the New Jersey Local Finance Board to implement budget improvements and restructure municipal debt," said Moody's analyst Josellyn Yousef. "The probability of bondholder impairment is likely low if budget solutions are adequate and/or state financial support is high, but could rise if they are not, which would lead to a revision of the rating downward."
Yousef said one factor that could lead to a downgrade is an indication that bondholder recoveries would fall below 90% in a potential debt restructuring. She added that outstanding tax appeal refunds facing Atlantic City could also pose a risk to "bondholder security" even if the state's rescue package is adequate. Atlantic City owes the Borgata casino $153 million in tax refunds and missed a $62 million payment on Dec. 19.
Moody's downgraded Atlantic City six notches to Caa1 a year ago after Christie's appointment of corporate restructuring attorney Kevin Lavin as emergency manager. Standard & Poor's slashed the gambling hub's rating four notches to CCC-minus on Jan. 22 citing "a near-term liquidity crisis."
