Atlantic City sells bonds to finance remaining casino tax appeal settlements

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Atlantic City’s $68.3 million bond transaction to finance property tax appeal settlements saw strong investor demand Tuesday, according to the designee leading New Jersey’s financial recovery efforts.

New Jersey Gov. Chris Christie’s administration announced Wednesday that the appeal refunding bonds sold under New Jersey’s Municipal Qualified Bond Act program sold rapidly. The bonds, which were wrapped by Assured Guaranty Municipal, will pay for $71.million in total tax appeal settlements the state reached with seven casinos.

“Atlantic City is now getting excellent access to the bond market, which is amazing for a city that was contemplating bankruptcy before we stepped in to manage its finances,” said Jeffrey S. Chiesa, who was tapped as state designee to tackle the city’s financial turnaround after New Jersey’s Local Finance Board voted for a state takeover last November. “The fact that the city obtained bond insurance and sold the bonds at a low interest cost means it is well-positioned to responsibly pay down the tax refunds it owes to casinos while preserving critical public services.”

Morgan Stanley priced the negotiated deal at yields ranging from 1.19% in 2018 to 3.80% in 2042.

The deal received ratings of A2 by Moody’s Investors Service and AA by S&P Global Rating because of the bond insurance. It also carries Municipal Qualified Bond Act underlying ratings of Baa1 from Moody’s and BBB-plus from S&P. Atlantic City’s general obligation debt has deep junk-level credit ratings of CC by S&P and Caa3 by Moody’s.

This week's pricing financed settlements with Bally’s, Caesars, Golden Nugget, Harrah’s, Tropicana Casino & Resort, the former Taj, and the former Trump Plaza Hotel and Casino.

A similar $69.8 million Atlantic City MQBA transaction in May insured by Build America Mutual also generated investor interest with the bonds selling at a true interest cost of 4.66%. The bonds funded a $72 million settlement the state negotiated with MGM Resorts International, which owns Borgata Hotel Casino & Spa, on $158 million of property tax appeal judgments and claims the city owed.

Prior to the May sale, Atlantic City had last accessed the capital markets in 2015 through the state’s credit enhancement program to pay off an emergency $40 million loan and retire $12 million of maturing bond anticipation notes with a $41 million taxable general obligation bond sale.

“Through a lot of hard work, we resolved all outstanding property tax appeals filed by casinos in the city through settlement agreements that are saving the city millions of dollars, we implemented a plan to finance this debt that fits within the city’s budget, and we shepherded the successful sale of bonds, which sold at very attractive interest rates for the city, to fund this debt that heretofore had been crushing the city,” Chiesa said. “The city is in a much better place and is back on the road to stability.”

Atlantic City entered 2017 with $224 million in bonded debt after paying $36.7 million toward debt service last year, according to an audit report released in May. The city has sizable upcoming debt service payments including $6.4 million owed on Nov. 1, according to S&P.

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Primary bond market City of Atlantic City, NJ New Jersey