Moody's Investors Service said it has placed the Baa2 special tax rating on the Casino Reinvestment Development Authority, N.J.'s $244.3 million parking fee and Atlantic City fund revenue bonds and $71.2 million hotel fee revenue bonds under review for possible downgrade.
The parking fee bonds are secured by three revenue streams: a senior lien on $2.50 of a statutory $3 fee levied on vehicles parking in Atlantic City casinos as established by state statute; an additional contractual casino parking fee of $1 levied on vehicles parking at the casinos pursuant to parking fee agreements; and investment alternative tax (IAT) obligations scheduled for the Atlantic City fund (based on the original CRDA Act agreements and pledged to secure the bonds from January 1, 2011 through December 31, 2018) pursuant to individual donation and credit agreements with 11 casinos.
The hotel fee bonds are secured by a senior lien on a $3 fee imposed on each occupied hotel room (paid and complimentary) each night in the 12 Atlantic City casinos, including Revel Casino The fee is collected by the casinos and transferred to the state Treasurer on a quarterly basis. Although the total revenue stream secures debt service on the total bond issue, any excess funds from one-third revenue stream will be released by the Trustee back to CRDA. Excess funds from the remaining two-thirds of the stream will be retained by the state. The state has elected to net fund debt service on this portion, only remitting those amounts needed to fill the Debt Service Fund until it is 2/3 full.
These reviews follows steep declines in Atlantic City gaming revenues of 20% in October and 28% in November 2012. The gaming revenue trend may indicate a potential decline in hotel room fees that could negatively pressure debt service coverage.
Although hotel room occupancy rates and room fee revenues have remained relatively stable since 2006,compared to the precipitous declines of 36% of gaming revenues, they have not been immune to competitive pressures facing Atlantic City casinos.
Much of the stability in hotel room fee revenue may be attributed to increased complimentary room offered to promote traffic in casino premises.
During the review the rating agency expects to obtain audited 2011 and 2012 year-end hotel fee revenue information in order to determine debt service coverage and project future coverage based on our expectations for the Atlantic City gaming and hotel industry.
In 2011, unaudited debt service coverage was an adequate 1.89 times debt service. Given the very narrow and declining taxable base for these bonds, Atlantic City casinos, a decline in coverage of below 1.5 times may place negative pressure on the rating.
Hurricane Sandy made landfall near the city on Oct. 30, 2012, causing ocean surges that city officials estimate resulted in $23 million of damage to the city's boardwalk, sand dunes, streets and city buildings.
None of the casinos reported significant damage, although they were closed for five consecutive days immediately following the storm.
According to Moody's U.S. Corporate Gaming analyst projections, casino revenues could continue to decline by 25% (year over year) through the first quarter of 2013. This review will incorporate an assessment of the impact of Hurricane Sandy on the rating.