More Trouble Seen for Atlantic City

Recent news signals continued trouble for Atlantic City, N.J., according to Moody's Investors Service.

The gambling hub requested and was granted a 60-day extension on a $40 million state loan, and was recently hit with a new lawsuit filed by the Borgata Hotel Casino.

The New Jersey loan was due March 31; the extension marks the second time in four months that the state assisted the city due to difficulties accessing the capital markets.

The extension to June 30 is an internal agreement between the state and city designed to allow additional time for preparing a bond sale to refinance the loan, according to Moody's analysts Josellyn Yousef and Orlie Prince in an April 2 report.

However, a March 20 lawsuit filed by Borgata arguing that the bond sale will violate a September 2014 bond authorization may challenge the planned borrowing and also "foreshadows" future legal suits by casinos who are creditors, the Moody's analysts noted.

The loan extension, coupled with Borgata's lawsuit, is another signal that the city will struggle to meet its obligations as they come due and may default, said Yousef and Prince. "These most recent events reflect some of the hurdles facing Atlantic city as it struggles with a 2015 liquidity crisis and an enormous long-term structural imbalance," they wrote.

The September 2014 bond authorization was intended to finance property tax appeal funds that included $88.3 million to Borgata. The lawsuit and loan extension came on the heels of a March 24 report released by Atlantic City emergency manager Kevin Lavin that laid out plans to cut expenses by $10 million in 2015 in effort to help close a projected budget gap of $101 million.

"Challenges similar to Borgata's lawsuit will not only continue to impede the city from accessing the capital markets, but could create a roadblock for long-term fiscal recovery," wrote Yousef and Prince.

The Moody's analysts added that the most promising solution for long-term revenue stability in Atlantic City would be proposed legislation that would enable the conversion of casino tax revenues into payments in lieu of taxes, which would require agreement from gambling facilities like the Borgata.

The emergency manager report includes casinos as among primary stakeholders who will need to make concessions to help improve Atlantic City's finances over the long-term. Atlantic City owes the casinos a total of $150 million in tax appeal refunds, including $88 million for Borgata, according to Moody's.

New Jersey Gov. Chris Christie's decision to appoint an emergency manager for Atlantic City prompted a six-notch downgrade on the city's $344 million in general obligation debt to Caa1 from Ba1. Standard & Poor's responded to the emergency manager move by lowering its Atlantic City rating four notches to BB from BBB-plus.