An Atlantic City default may be imminent if New Jersey rejects the city's five-year rescue plan next week, according to Moody's Investors Service.
Moody's analyst Douglas Goldmacher said in a report Thursday that Atlantic City faces a $9.4 million debt service payment on Nov. 1. The cash-strapped municipality will then owe debt payments of $2.4 million on Dec. 1 and $4.7 million on Dec. 15.
"While the city has stated it remains committed to making the debt service payment, its ability to do so decreases daily," said Goldmacher in the report. "Absent successful implementation of its turnaround plan, or a state takeover with a funding infusion, default may be merely a matter of time as the city owes an additional $7.1 million in debt service before the end of the year."
New Jersey's Department of Community Affairs is to decide by Tuesday if it will accept or reject the recovery plan. A rejection would authorize the state to take over city finances and alter outstanding debt and municipal contracts for five years. The city has roughly $500 million in total debt and liabilities including more than $200 million in tax-appeal refunds and deferred pension and benefit contributions.
A key component of the recovery plan involves a $110 million sale of the former Bader Field airport property to Atlantic City's independently-operated Municipal Utilities Authority with proceeds used to pay off outstanding debt. The city also plans to tackle debt through issuing $105 million of tax-exempt bonds through New Jersey's Municipal Qualified Bond Act. Additional savings would be realized through tax settlements with Borgata and MGM casinos that city officials say will save as much as $47 million as well as cutting the number of full-time city employees by 100.
Goldmacher noted that even if the recovery plan is rejected, the state may or may not exercise its takeover rights under the rescue aid package approved in May, leading to "considerable uncertainty." He points out that if the state rejects the plan and only provides minimal or no assistance, Atlantic City could look to enact some of the recovery efforts "unilaterally" while other aspects could proceed without state approval.
The selling of Bader Field to the MUA would involve the water utility borrowing raising funds for the acquisition through bonding. Goldmacher noted that the transaction would require the authority to materially increase customer rates in order to pay debt service. Moody's rates MUA debt at B3 with a negative outlook.
"The city maintains the rate increases would primarily affect commercial entities, not residential homes, and would be further offset by profits from developing Bader Field," said Goldmacher. "Should this scenario prove overly optimistic, the MUA would be forced to raise rates rather more than is currently expected."
