The Jan. 22 executive order signed by New Jersey Gov. Chris Christie to appoint an emergency management team to oversee Atlantic City's finances is a credit negative for the seaside city and other struggling Garden State municipalities, according to Moody's Investors Service.
Moody's downgraded Atlantic City's $344 million in general obligation debt to Caa1 from an already junk-bond level Ba1 the day after Christie's order appointing corporate restructuring attorney Kevin Lavin from FTI Consulting to oversee the city's finances and daily operations. The Republican governor also named Kevyn Orr, who was Detroit's emergency manager during its recent Chapter 9 bankruptcy process, as a part-time consultant.
Moody's said in a Jan. 27 report that while New Jersey has traditionally had strong state support for struggling localities, the emergency manager move could signal a "limit" toward trying to prevent a defaults or bankruptcies.
Moody's analysts said a portion of the executive order that tasks the emergency manager with creating a plan to stabilize Atlantic City's finances "by any and all lawful means" including debt adjustments was especially worrisome.
"That statement, along with the appointment of two bankruptcy and restructuring experts, signals a paradigm shift in the state's tradition of support for its municipalities," said Moody's analysts David Strungis, Josellyn Yousef, Julie Beglin and Naomi Richman in their report.
Other New Jersey municipalities Moody's highlights that currently face financial challenges are Harrison, rated Baa3 with a negative outlook, Paterson (Baa2 negative), Newark,(Baa1 negative) Union City (A3), Trenton (A3 stable) and Camden (unrated). There have been no bankruptcies or defaults on GO debt in New Jersey since at least 1970, according to Moody's. Camden filed for Chapter 9 bankruptcy in 1999 without state approval and withdrew its petition after the state provided $62 million in state aid.
When Moody's slashed its Atlantic City credit rating six notches last week it said the city is at an increased default risk in large part to a looming maturity of $12.8 million of bond notes scheduled to expire on Feb. 3. A competitive sale of $12 million of bond anticipation notes slated for Jan. 27 was cancelled in anticipation of a snowstorm that struck the state and is expected to be rescheduled for later in the week.
Prior to Christie's executive order, the state provided Atlantic City a $40 million emergency loan after the city delayed a $140 million bond issue from November to the first quarter. Other financial proposals to aid Atlantic City are pending in the state legislature.