Standard & Poor's slashed Atlantic City's general obligation credit rating three notches further into junk territory on Aug. 3 citing uncertainty over whether the financially-challenged city can meet its fiscal obligations this year.
S&P lowered Atlantic City, N.J. to B from BB and kept the Southern New Jersey city on credit watch negative. Credit analyst Timothy Little noted that the city faces short-term risks from the "lack of a clear plan" to plug an estimated 2015 deficit of $101 million, adopting a 2016 fiscal budget and achieving tax collection projections.
"The downgrade reflects continued uncertainty regarding the long-term fiscal stability and recovery of the city as it responds to increasing liabilities from tax appeals and an eroding tax base," Little said. "The 'B' rating reflects our view that the city is more vulnerable to nonpayment since our last review given that three months have passed without additional clarity on how the city will propose to resolve its long-term financial challenges."
Atlantic City Revenue Director Michael Stinson expressed frustration at S&P's action, noting that August debt payments are being met and he expects a balanced budget to be achieved in early September if New Jersey Gov. Chris Christie signs legislation adopting a rescue package that would create additional revenue. Stinson also emphasized that the city was able to successfully go to market in May with $40.5 million in Municipal Qualified Bond Act (MQBA) bonds to pay off a state loan and that tourism has been up this summer.
"There has been nothing negative happening to the city since we issued those bonds in May," said Stinson. "A downgrade at this point is unwarranted."
Little said that while Atlantic City was able to address immediate financial and liquidity pressures through the MQBA bonds, future market access remains uncertain. He also noted that since the release of a 60-day report from emergency manager Kevin Lavin there has been no clarity on potential payment deferrals. The report issued on March 24 suggested a bong restructuring as one option to stabilize Atlantic City's finances and a spokesman for Lavin said on July 1 that all options are on the table with a potential bankruptcy filing not ruled out.
"The lack of clear and implementable reforms to restore fiscal solvency without payment deferrals or debt restructuring remains uncertain as the city continues to operate in a difficult fiscal environment," said Little.
Moody's Investors Service issued a July 20 report saying that Atlantic City's ability to meet its August payments was a credit positive. Moody's downgraded Atlantic City six notches to Caa1 in January after Christie placed it under emergency manager control.