Atlantic City is planning to issue $72 million in bonds to pay for its tax settlement with the Borgata casino.
The gambling hub is slated to cover the property tax refunds by borrowing though New Jersey's Municipal Qualified Bond Act, according to Lisa Ryan, a spokeswoman for the state Department of Community Affairs, which is overseeing a state takeover that took effect in November.
The state announced last week that it had struck a deal for the distressed city to pay less than half of the $165 million it owes the Borgata in tax appeals from 2009 to 2015.
"Qualified bonds will be issued in one or more tranches to achieve the settlement amount," said Ryan in a statement. "The parties are confident in the City's ability to access the capital market and raise the necessary amount needed to cover the financing."
Ryan said borrowing costs won't be known until the sale, which is anticipated in the next two months based on the settlement agreement. The New Jersey MQBA is a state intercept program that diverts a municipality's qualified state aid to the trustee for debt service payments.
Prior to the state's intervention, city officials proposed paying $103 million for a Borgata settlement through MQBA bonding as part of a five-year rescue plan that was rejected by the DCA.
"I'm glad the state is seeing the wisdom in what we proposed in our fiscal plan back in November," Atlantic City Mayor Don Guardian said in a statement. "I applaud them for getting the actual amount due upfront lower, even though they have had over two years to do it. It remains to be seen how the other $30 million will be taken care of, but the quicker we can get this issue off the table, the quicker we can move forward tackling the remaining legacy debt."
Atlantic City last utilized the state's credit enhancement program in May 2015 to pay off an emergency $40 million loan and retire $12 million of maturing bond anticipation notes. The city paid a high penalty for a $41 million taxable GO bond sale to address the loan payment with Bank of America Merrill Lynch pricing the bonds to yield at 7.25% in 2028 and 7.75% in 2045.
Atlantic City has deep junk level bond ratings of CC from S&P Global Ratings and Caa3 from Moody's Investors Service. Bonds issued under the MQBA are rated BBB-plus by S&P and A3 by Moody's.
Atlantic City, which has suffered five casino closures since 2014, is saddled with $224 million in outstanding bond debt. The city paid $36.8 million in debt service last year, according to Moody's.