Atlantic City's $72 million tax settlement with the Borgata Hotel Casino & Spa is a credit positive for the distressed gambling hub because it produced "considerable" savings, according to Moody's Investors Service.
Moody's analyst Douglas Goldmacher said in a report Wednesday that the agreement struck between New Jersey and the casino over $165 million in owed tax refunds will save Atlantic City as much as $93 million. He added that the settlement, which includes Borgata making quarterly payments in lieu of taxes to Atlantic City, also "removes a major point of uncertainty" as the state develops a fiscal rescue plan after taking over the city's troubled finances in November.
"The savings are considerable and actually exceed the amount forecasted by the city in its fiscal recovery plan rejected by the state last year," said Goldmacher in the report. "Given that the city's total debt and other obligations before the settlement were in the vicinity of $424 million, this represents a material reduction of as much as 22%."
Atlantic City is planning to issue $72 million in bonds to pay for the tax settlement by borrowing though New Jersey's Municipal Qualified Bond Act. Under terms of the program, the state would withhold aid payments owed to Atlantic City and use those funds to pay debt service costs.
"Atlantic City previously issued debt under the program in 2015, but with its finances in worse shape and weak credit profile, it is uncertain how the market would view an offering and how much the issuance would cost,' said Goldmacher. "Nonetheless, having the MQBA enhancement should help considerably."
Goldmacher emphasized that a critical element of the settlement is the new PILOT payments Borgata will start making under New Jersey's Casino Property Tax Stabilization Act after a court had granted the casino permission in February 2016 to withhold property tax payments because it was still owed refunds. The Borgata is the most profitable of the remaining seven Atlantic City casinos as well as the city's largest taxpayer and employer.
"A less concrete, though no less important, result of the settlement is that it removes uncertainty for the city after years of negotiations and litigation with Borgata," said Goldmacher. "The deal puts a final number in place and allows the city and state to refine their budgeting and financial plans."
Goldmacher cautioned that while the settlement will help Atlantic City's financially, the city's finances "remain in a perilous state" with liquidity low and the economy still heavily reliant on gambling. However, he said the settlement "is a major step forward" toward setting up a path to tackle the city's debt challenges.
"It clears one of the biggest outstanding items of concern for the financially beleaguered city," he said. "While it does not solve the city's problems, the settlement makes addressing those problems considerably more likely."
