In the aftermath of Hurricane Sandy, Moody's Investors Service has turned negative on an array of coastal New Jersey communities and one authority.
Moody's has put the Casino Reinvestment Development Authority hotel fee bonds, rated Baa1, and parking fee revenue bonds, rated Baa2, on review for downgrades. The authority has $253 million of outstanding parking fee bonds and $75 million in outstanding hotel fee bonds.
Also on Monday, Moody's put the Borough of Union Beach, rated A1, on review for a downgrade. It has $10.3 million in debt.
Moody's downgraded the Borough of Seaside Heights with $13.8 million in debt to A3 from A2.
Moody's also put negative outlooks on the Borough of Belmar (Aa3), Borough of Lavallette (Aa3), Township of Long Beach (Aa2), and Borough of Sea Bright (A1). Each of them has less than $20 million in debt outstanding.
Moody's put the Casino Reinvestment Development Authority's bonds on downgrade review because "Hurricane Sandy may have accelerated an already steep decline in visitors and [because of] the sensitive nature of the revenues to shifts in casino-related activity." The authority did not respond to a request for a comment.
With regards to Moody's downgrade of Seaside Heights' general obligation bonds, Moody's noted the borough's current fund budget is funded about 40% by beach-related revenues. "Seaside Heights was already weak for its rating prior to the storm, due to its small size and thin cash position," Moody's analysts wrote. "We expect the already-high debt burden to increase further as the borough borrows additional money to pay for Sandy recovery costs."
"Placement of the [Union Beach] rating on review for downgrade is reflective of the borough's narrow financial position prior to Hurricane Sandy," the analysts wrote. "Union Beach was severely impacted by the storm and issued a $2 million note to fund clean-up costs, representing a large expenditure relative to the borough's $7.6 million budget and $10.3 million outstanding debt."
In the last month due to Sandy's impact, Moody's also placed the NYU Hospitals Center (A3, $753 million in debt) and the Long Island Power Authority (A3, $7 billion in debt) on downgrade reviews.
"Some of these issuers' tax bases are likely to contract as owners of destroyed properties seek to appeal their valuations," the analysts wrote. "Others fund their budgets with sensitive business activity revenues related to tourism, such as beach fees or marina slip rentals, which could be challenged depending on the pace and success of reconstruction. The ramifications will play out over time."
"Some Federal Emergency Management Agency aid comes quickly (i.e., reimbursement for debris removal, emergency sheltering, emergency response), while other FEMA aid is more long term (i.e., rebuilding boardwalks, water and sewer plants and other public infrastructure)," Moody's spokesman David Jacobson wrote. "So some FEMA aid is already flowing to states and localities for emergency response. Rebuilding is a longer, more complicated process involving engineering estimates, approval of the project, scope of rebuilding, etc."
"Should FEMA aid take significantly longer than one year, it could place additional pressure on [the towns'] financial operations and liquidity," the analysts wrote.