Moody's raises Atlantic City debt to a higher junk rating

Atlantic City opened the new decade with a rating boost from Moody's Investors Service, marking continued fiscal stability entering year four of a five-year state takeover period.

Moody’s upgraded Atlantic City’s general obligation bonds two notches Friday to Ba3 from B2 and assigned a stable outlook, citing improved finances under an oversight program established under the Municipal Stabilization and Recovery Act of 2016 slated to expire in November 2021.

That brings Atlantic City two notches away from investment grade and in line with S&P Global Ratings, which upgraded Atlantic City debt two notches to BB-minus in November. The Ba3 rating is six levels above where Moody’s rated the gambling hub from April 2016 to November 2018.

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“We view the continued oversight by the State of New Jersey as critical to the city’s continued well-being and progress,” Moody’s analyst Douglas Goldmacher wrote . “The state's future oversight role remains to be determined and will be of critical importance to the city's future credit quality.”

Moody’s concurrently affirmed the Baa1 enhanced rating with a stable outlook for bonds issued under New Jersey’s Municipal Qualified Bond Act. Moody’s rates roughly $182 million of debt issued under the state intercept program. The city has $357.3 million in total outstanding bonded debt, according to Moody’s.

Goldmacher noted that the upgrade reflects Atlantic City’s improved budgetary conditions that were aided by a successful settling of long-term liabilities and implementation of a casino payments-in-lieu of taxes program. The city’s expenditures of $228 million for 2018 were 27% lower than 2013 following an adjustment in staffing levels and increasing operating efficiencies, according to Goldmacher.

“Under ordinary circumstances, the city's adjusted fund balance figure of more than $50 million would be considered quite healthy, however, circumstances are not normal,” Goldmacher said. “While the casino PILOTs are more stable than casino taxes, they are still tied to an inherently volatile industry.”

While Atlantic City has made efforts to expand its business activities beyond traditional gambling, Goldmacher stressed that diversification will take time to make any material economic impact. Stockton University opened a satellite Atlantic City campus in 2018 with the Atlantic County Improvement Authority issuing a combined $127 million in lease revenue and county guaranteed revenue bonds to finance part of the project. South Jersey Gas Company has also built corporate offices adjacent to the campus project.

"The Moody's upgrade and the S&P Global Ratings upgrade this past November show that we are on the right track in Atlantic City," New Jersey Department of Community Affairs spokeswoman Lisa Ryan said in a statement. "We are proud that Atlantic City has come such a long way, but we are also keenly aware of the considerable work that remains."