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Moody's downgraded Atlantic City's $344 million in general obligation debt to Caa1 from an already junk-bond level Ba1.
Moody’s said Friday’s action resolved the review for possible downgrade it initiated Dec. 11 after the city postponed a $140 million bond sale.
“The downgrade to Caa1 reflects the appointment of an emergency management team of two bankruptcy specialists mandated to consider debt restructuring, which could involve a loss to bondholders,” Moody's analysts Josellyn Gonzalez Yousef and Naomi Richman said in their report. "The Caa1 rating indicates a high risk of default over the next five years."
An increased default risk also stems from the looming maturity of $12.8 million of notes Feb. 3, Moody's said.
Atlantic City Revenue Director Michael Stinson expressed frustration at the Moody's decision, saying limited state oversight that began five years ago has gotten a positive reaction from investors. Stinson also emphasized that there are five bills in the state legislature that could provide the city with 15 years of financial stability.
"I'm shocked at the level of the downgrade," said Stinson. "They totally misunderstood the role the governor is doing for Atlantic City."
In response to Stinson's criticism, Moody's spokesman David Jacobson said "we stand by the information in our report."
Moody's also announced Friday it has downgraded the Atlantic City Municipal Utilities Authority's $18.4 million in outstanding water revenue debt to B2 from Ba1 because of recent signals the city may pursue a sale of the water system, a debt restructuring, or file for bankruptcy.
In an executive order Thursday, Christie appointed corporate restructuring attorney Kevin Lavin from FTI Consulting to oversee Atlantic City's finances and daily operations as emergency manager.
He named Kevyn Orr, who was Detroit's emergency manager during its recent Chapter 9 bankruptcy process, as a part-time consultant in the emergency management effort.
"This is a rapid, dramatic change from the State of New Jersey's prior policy of preventing default or bankruptcy of Atlantic City or any New Jersey local government," the Moody's statement said.
The Moody's report said that prior to Christie's appointment of an emergency manager, Atlantic City planned to issue roughly $200 million in bonds over the next two years to fund tax appeal settlements. Of the $140 million bond issuance delayed two months ago, $40 million was temporarily financed with a bridge loan from New Jersey.
The city reported $60.5 million of cash at the end of 2013 with more than half, $36.8 million, accounting for unspent bond proceeds raised during a bond sale held that year, according to Moody's.
Yousef and Richman said Atlantic City's ratings could drop even more if there is a default on debt obligations, there is less financial support offered from the state, or if bondholder recoveries are under 90% in a potential debt restructuring. Casinos comprise around 75% of the city's tax base; four Atlantic City casinos were shuttered in 2014.
The city has $397 million in total debt, Moody's said.
Christie said in his Thursday announcement that he is giving Orr and Lavin the authority to use their financial expertise "in partnership" with city officials to help turn fiscal conditions around.
Atlantic City Mayor Don Guardian said after meeting with Orr and Lavin that they both indicated wanting to work together with him and city council members in "spirit of cooperation." He added that Christie's decision will provide more tools to get Atlantic City out of "financial distress."
Standard & Poor's Ratings Services last
Moody's Investors Service said it has downgraded Atlantic City, N.J.'s general obligation debt to Caa1 with a negative outlook from Ba1.
This action resolves the review for possible downgrade that it initiated in December 2014.
The city currently has $344 million of outstanding long-term GO debt and $397 million of total debt.
The downgrade to Caa1 reflects the appointment of an emergency management team of two bankruptcy specialists mandated to consider debt restructuring, which could involve a loss to bondholders.
The increased risk of default further arises from the city's looming $12.8 million note maturity on February 3.
This is a rapid, dramatic change from the state of New Jersey's (GO A1/ negative outlook) prior policy of preventing default or bankruptcy of Atlantic City or any New Jersey local government. The Caa1 rating indicates a high risk of default over the next five years.
Moody's also downgraded Atlantic City Municipal Utilities Authority's water revenue debt to B2 from Ba1, and assigned a negative outlook.
The authority has $18.4 million of outstanding.
