Christie plan drives 'rapid, dramatic' drop in Atlantic City credit rating

N.J. Gov. Chris Christie's appointment of ex-Detroit financial restructuring chief Kevyn Orr and consultant Kevin Lavin to take charge of Atlantic City's finances as casino closings cut city finances has provoked Moody's Investors Service to cut the credit rating on $344 million of Atlantic City's general-obligation debt by a big six notches, to Caa1 (substantial risk") from Ba1 ("speculative"). The agency threatens further cuts, analyst Josellyn Gonzalez Yousef writes in a note to Moody's clients this morning.

Moody's big drop in confidence Atlantic City will pay back its bond buyers "reflects the appointment of an emergency management team of two specialists mandated to consider debt restructuring," which Moody's believes is likely to include a reduction in the payments the city promised when it sold bonds and borrowed money from investors.

"The increased risk of default further arises from the city's looming $12.8 million note maturity on February 3," Gonzalez Yousef added. "This is a rapid, dramatic change from the State of New Jersey's prior policy of preventing default or bankruptcy of Atlantic City or any New Jersey local government. The Caa1 rating indicates a high risk of default over the next five years."  Moody's will cut the rating again if Christie's commissioners reduce bond payments by more than 10%.