Standard & Poor's Ratings Services has lowered its rating on Atlantic City Municipal Utilities Authority (ACMUA), N.J.'s water system revenue bonds to 'B-' from 'BBB' and placed the rating on CreditWatch with negative implications.
"The downgrade is due to the uncertainty surrounding an opportunity identified by the city's emergency manager that the MUA could be dissolved, restructured, and operated for the benefit of Atlantic City," said Standard & Poor's credit analyst Scott Garrigan. Given this context, it is our view that a restructuring of the MUA's debt cannot be ruled out. While it is not entirely certain whether some type of debt restructuring would occur in conjunction with a dissolution or restructuring of the MUA, we believe that the existence of this possibility is not consistent with a higher rating level. Alternatively, if MUA is dissolved and the debt is assumed by Atlantic City, there could be further deterioration in the credit rating on those new obligations due to our significant concerns regarding the city's ability to make future additional debt service payments.
Because we consider the possibility of further deterioration in the rating to be at least a one in two possibility, given the uncertainty of the events described above, we have also placed the rating on CreditWatch with negative implications. While there is no public information available on the timing of dissolution or debt restructuring taking place, because it could conceivably occur within the next 90 days, we have applied our CreditWatch designation instead of a negative outlook.
"If we receive additional information that a debt restructuring or negotiated exchange would be a likely course, the rating would likely drop to no higher than 'CCC' and could be lower," added Mr. Garrigan, "depending on our view of the specific default scenarios that are envisioned during the next 12 months.
