Fearing default by Atlantic City, S&P slashes rating
A major Wall Street ratings agency took the extraordinary step of downgrading Atlantic City's credit four notches Friday, saying default appeared "inevitable" within six months absent significant changes in the city's circumstances.
A major Wall Street ratings agency took the extraordinary step of downgrading Atlantic City's credit four notches Friday, saying default appeared "inevitable" within six months absent significant changes in the city's circumstances.
"The city is currently vulnerable to nonpayment on its obligations and we believe it is likely to default without an unforeseen positive development," said Standard & Poor's credit analyst Timothy Little.
The downgrade of Atlantic City's general obligation debt to CCC from B comes as the City Council plans to hold an emergency meeting Tuesday to discuss the possibility of bankruptcy.
The state would need to approve a bankruptcy filing; State Senate President Stephen Sweeney (D., Gloucester) has said he opposes such a move.
The city had balanced its $262 million budget for 2015 - with the approval of the state Local Finance Board - on the assumption that it would receive $33.5 million in aid from the state to pay its debt service.
Gov. Christie, however, this week vetoed legislation that was intended to stabilize Atlantic City's finances, which have been rocked by a downturn in the casino industry. Christie said he wouldn't "permit the people of New Jersey to pay for their excess any longer." He is also said to support Sweeney's proposal for a state takeover of the resort.
Standard & Poor's said the "city's financial commitments appear, in our opinion, to be unsustainable in the long term."
Lawmakers are considering legislation that would allow the state to take control of the city's finances.
Standard & Poor's said it could raise the rating if Atlantic City's near-term liquidity crisis is remedied.
The city has about $240 million in debt and owes an additional $160 million in tax appeals to the Borgata Hotel Casino & Spa. It faces a projected $300 million deficit over the next five years, not including nonbonded obligations such as deferred pension and health benefit payments and tax appeals, according to the emergency manager Christie appointed to analyze the city's finances.
The ratings agency cited the potential Borgata refund and the emergency manager's findings among factors guiding its ratings decision.
It warned that "should the city indicate it will likely miss a payment on its indebtedness [or] file a bankruptcy petition . . . we may revise our rating, potentially into the 'CC' category and view payment on its obligations as highly vulnerable."
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