Fol­low­ing two up­grades, At­lantic City has higher junk-level credit rat­ings from Moody’s In­vestors Ser­vice and S&P Global Rat­ings.

The Bond Buyer - - Front Page - By An­drew Coen

Con­tin­ued up­ward fis­cal mo­men­tum gave At­lantic City its sec­ond multi-notch up­grade in a two-week stretch.

Moody’s In­vestors Ser­vice boosted the Jer­sey Shore gam­bling hub four notches Thurs­day to B2 from Caa3 and as­signed a pos­i­tive out­look, cit­ing an im­proved casino in­dus­try and on­go­ing ef­forts to di­ver­sify the city’s tax base.

The rat­ing re­mains spec­u­la­tive grade, but the higher junk mark from Moody’s is in line with S&P Global Rat­ings, which up­graded At­lantic City gen­eral obli­ga­tion bonds two notches on Oct. 16 to B from CCC-plus due largely to fis­cal im­prove­ments achieved un­der state over­sight.

“The new B2 rat­ing re­flects the city’s con­tin­ued but re­duced fi­nan­cial and eco­nomic dis­tress,” wrote Moody’s an­a­lyst Dou­glas Gold­macher. “The rat­ing is also in­formed by the ma­te­rial bud­getary im­prove­ments and es­pe­cially by the con­tin­ued, strong over­sight by the State of New Jer­sey.”

It’s the first time Moody’s has rated At­lantic City at B level since a six-notch down­grade in Jan­uary 2015 to Caa1 from Ba1 af­ter for­mer New Jer­sey Gov. Christie hired an emer­gency man­ager to over­see city fi­nances.

At­lantic City was then slashed two notches by Moody’s to Caa3 in April 2016 just seven months be­fore state in­ter­ven­tion took ef­fect af­ter a near-de­fault. The cur­rent higher rat­ing is still well be­low in­vest­ment grade and sub­ject to high credit risk.

Moody’s con­cur­rently af­firmed At­lantic City’s Baa1 en­hanced rat­ing for bonds is­sued un­der New Jer­sey’s Mu­nic­i­pal Qual­i­fied Bond Act with the out­look re­main­ing sta­ble.

At­lantic City has around $400 mil­lion in out­stand­ing debt, with about half of it MQBA-en­hanced, ac­cord­ing to Moody’s.

“The Moody’s credit up­grade is one more step in the right fi­nan­cial di­rec­tion for At­lantic City,” Mayor Frank Gil­liam said in a state­ment. “We still have a lot of work to be done, but the City of At­lantic City looks for­ward to con­tin­ued growth.”

Gold­macher noted that At­lantic City will ben­e­fit in the fu­ture from new state leg­is­la­tion un­der the Casino Prop­erty Tax Sta­bi­liza­tion Act that will pre­vent gam­bling prop­er­ties from fil­ing tax ap­peals. The bill con­verts casino prop­erty taxes into pay­ments-in-lieu-of taxes. The city had two bond sales last year to fi­nance long-out­stand­ing casino prop­erty tax ap­peal set­tle­ments.

“For­merly, casi­nos were as­sessed based on prof­itabil­ity and not based on the mar­ket rate for re­sale,” Gold­macher wrote. “As a re­sult, when rev­enues de­clined, the casi­nos were able to file large tax ap­peals.”

Moody’s cred­ited At­lantic City for find­ing bud­get sav­ings with less reliance on state aid. The city re­duced ex­pen­di­tures for pub­lic safety by 13.3% and gen­eral ad­min­is­tra­tion by 26% in its 2017 bud­get. A 16.2%, or $6 mil­lion drop in debt ser­vice also ben­e­fited the city’s bud­get flex­i­bil­ity, ac­cord­ing to Gold­macher.

“Fa­vor­ably, the city has taken steps to ad­dress its fi­nan­cial sit­u­a­tion, most no­tably ad­just­ing la­bor con­tracts and ma­te­ri­ally trim­ming ex­pen­di­tures,” said Gold­macher. “Even with the im­prove­ments, how­ever, the city’s liq­uid­ity will re­main weak and ad­justed fund bal­ance is likely to re­main nar­row for at least the next few years.”

The ad­min­is­tra­tion of Gov. Phil Mur­phy rec­om­mended in a late Septem­ber re­port con­tin­u­ing state in­volve­ment of At­lantic City fi­nances through at least the fall of 2021 un­der the Mu­nic­i­pal Sta­bi­liza­tion and Re­cov­ery Act. The 64-page re­port also urged in­creased di­ver­si­fi­ca­tion of At­lantic City’s econ­omy be­yond casi­nos and im­proved prac­tices for se­nior mu­nic­i­pal work­ers.

“The rat­ings agen­cies clearly rec­og­nize the sig­nif­i­cant hard work and col­lab­o­ra­tion be­ing done by At­lantic City and the state to re­turn the city to sound fi­nan­cial foot­ing,” said Lisa Ryan, a spokes­woman for New Jer­sey’s Depart­ment of Com­mu­nity Af­fairs, which is over­see­ing the state takeover. “If we stay the course, we ex­pect to see much more progress.” ◽

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