Atlantic City, N.J.'s ability to refinance its maturing $12.8 million bond anticipation notes through an expensive short-term loan demonstrates "limited market access", according to Moody's Investors Service.

The Atlantic City Council voted Feb. 3 to repay its outstanding notes by issuing $12 million of BANs in a negotiated deal with Merrill Lynch Pierce, Fenner and Smith & Co, at a 5% interest rate, according to Moody's. The city also used $800,000 of cash on hand.

This move came on the heels of a cancelled $140 million bond sale in December and New Jersey Gov. Chris Christie appointing an emergency manager in late January to oversee the city's troubled finances, which prompted a six-notch downgrade by Moody's due to the possibility of debt adjustments. The city's rating sits at Caa1 with a negative outlook.

"The refinancing was the city's first test of market access after the appointment of an emergency manager in late January, and its first attempt to enter the capital markets after canceling a December 2014 bond sale of $140 million," said Moody's analysts Josellyn Yousef, David Strungis, Julie Beglin and Naomi Richman in their Feb. 3 report.

When the $140 million bond sale was cancelled, Atlantic City instead received a $40 million loan from the state, which is due on March 31 and carries a 0.75% interest rate. Moody's also noted that the city settled on a $31.5 million delinquent property tax payment from the shuttered Revel casino with its primary lender Wells Fargo & Co.

Had Atlantic City been unable to successfully refinance the maturing BAN, Moody's said, it could have utilized cash on hand from roughly $40 million in its current fund and $20 million in the capital fund at note maturity, according to city officials.

This, however, would have "strained its liquidity position", which is already pressured from a struggling property tax base and the risks of additional property tax delinquencies, according to Moody's. The city's next debt service payment of roughly $3.35 million is due on Feb. 15 followed by repayment of the $40 million state loan on March 31.

"By that date, we will have more clarity on the emergency manager's plan and whether it includes a recommendation for a bankruptcy filing and/or adjustment of the city's debts," said the Moody's analysts.

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