Atlantic City borrows $12M at 5 percent to repay debt
ATLANTIC CITY - Atlantic City borrowed $12 million from Bank of America Merrill Lynch to refinance a note that was due Tuesday, Mayor Don Guardian said.
ATLANTIC CITY - Atlantic City borrowed $12 million from Bank of America Merrill Lynch to refinance a note that was due Tuesday, Mayor Don Guardian said.
The loan helped the city clear its first significant financial hurdle since Gov. Christie appointed an emergency manager last month, a move that made lenders wary of lending to the city.
The new loan, which came in just in time to help repay a $12.8 million note, has a six-month term and a high annual interest rate of 5 percent, costing the city $300,000, Guardian said.
"I think that's about the best deal we're going to get," Guardian told reporters during a brief meeting in his office.
The notes that are being refinanced, held by two short-term mutual funds, had an interest rate of 1.75 percent.
The $12 million loan will be due Aug. 4.
Its terms - including a high interest rate relative to the old loan and a shorter term - illustrate the uncertainty created by Christie's appointment of an emergency manager and a special consultant to stabilize the city's finances.
The consultant is Kevyn Orr, who led Detroit through the nation's biggest municipal bankruptcy.
Moody's Investors Service and Standard & Poor's Ratings Services, two major bond-ratings agencies, took the two appointments and the order naming them, which referred to the potential for a debt restructuring by all legal means, as a sign that bondholders could take a loss as officials try to stabilize the city's finances.
Federal grants for Hurricane Sandy repairs are expected to repay about $10 million of the new $12 million loan, but it's not clear if or when that money will arrive in the city's bank account. A condition of the new loan is that any storm-related grants that the city receives must be set aside to repay the loan.
"This is an additional security that the lender or buyer required," said Michael Stinson, the city's chief financial officer.
The New Jersey Department of Community Affairs, which oversees Atlantic City's finances, and Kevin Lavin, Christie's emergency manager, were involved in discussions with lenders, Stinson said.
The meaning of the terms demanded by lenders were clear to City Council President Frank M. Gilliam Jr.
"They're saying we're in bad shape," Gilliam said after the Council meeting.
