TRENTON -- A Wall Street credit agency on Monday downgraded Atlantic City’s already low-rated debt, citing a possible default within the next year and an “ongoing political stalemate” in the Statehouse over a proposed rescue package.
Moody’s Investors Service downgraded Atlantic City’s general obligation rating to Caa3 from Caa1 and said the struggling resort town’s credit outlook remained negative.
The downgrade in part reflects what Moody’s called a “higher probability of significant bondholder impairment” given the political standoff, as well as “renewed signals from the state that bondholders will face losses as part of a possible debt restructuring.”
Moody’s said it expected bondholders to lose up to 35 percent of principal, “in light of the city's very large structural deficit with limited sources of relief without state assistance.”
The ratings agency said it might upgrade Atlantic City’s credit if the state enacts legislation “that meaningfully augments city revenues and materially reduces the structural budget deficit.”
The downgrade comes as Gov. Christie, a Republican, and South Jersey Democrats are calling on Assembly Speaker Vincent Prieto (D., Hudson) to hold a vote on legislation that would authorize a state takeover of the city’s finances. Other legislation would establish a payment-in-lieu-of-taxes system for the city’s casinos to boost the city’s revenues.
Prieto says he opposes the takeover bill because it would allow the state to impair Atlantic City’s collective bargaining agreements with its unions.
Standard & Poor's also downgraded the city's debt in January.