Moody’s: State Loan Will Cover AC Until Takeover Deadline, But Long-Term Risk Remains

Screen Shot 2016-08-11 at 11.52.37 AM

Atlantic City’s is seeing a glimmer of good news. Ratings agency Moody’s is calling New Jersey’s $73 million bridge loan to its declining gaming capital a “credit positive” for the resort town, which has seen its bond rating sink to junk status in recent years. The agency downgraded the city’s rating again during a political standoff over a potential state takeover of its finances in April.

Moody’s analyst Doug Goldmacher said in a statement Thursday that while declaring the loan a positive development for the city does not mean its bond rating will change, it does reflect Moody’s confidence in local officials’ ability to avoid default and offer the state a successful budgetary plan. Without the loan, he said, there was a high probability the city would default on its debt in the next few months. Mayor Don Guardian and its city council have until November to balance the municipal budget and present the state with a recovery plan.

The loan, Jacobson wrote, will help the city make its payments between now and November, including $8.5 million to the state for its payment toward the city school district’s July tax levy, $9.8 million to the school district itself for its first payment of fiscal year 2017, and payments toward public workers’ post-employment benefits and pensions.

Jacobson wrote that the loan “guarantees that the school district will continue to receive its full property tax payment from the city, a major source of concern for the district and a major burden for the city, which collects and guarantees the payments from its own tax levy. The loan also likely ensures that bondholders will receive the full $18.1 million in debt service payments that the city owes for the remainder of the year.”

One ongoing point of concern for Moody’s and the city’s creditors will be the shuttering of the Trump Taj Mahal casino, which is scheduled to close its doors this fall. It will be the fifth Atlantic City casino to close since 2014, and could complicate plans surrounding the city’s payment in lieu of taxes agreement with its remaining casinos on top of costing the city jobs and economic activity.

The PILOT plan is intended to stop the rash of casino property tax appeals that have devastated the city’s ratable base by allowing the casinos to make flat payments. The loss of the Taj Mahal could cut into the amount of money the city can ask of them. There is also a lack of consensus among the state, city and surrounding Atlantic County as to how those funds will be doled out. The county has long held out for a 13.5 percent share of PILOT revenue.

“Although we expect other casinos in Atlantic City will capture a portion of the Trump Taj Mahal’s revenue, citywide gambling revenue is likely to decline. This, in turn, could have a knock-on effect on the city as the casinos’ payments in lieu of taxes (PILOT) can fluctuate depending on total casino revenues. This adds another layer of uncertainty to an already complex situation, given that the state, Atlantic County (Aa2/negative), and the city have yet to determine how the PILOT payments will be divided among them.”