When New Jersey Gov. Chris Christie appointed a Detroit emergency manager and a bankruptcy consultant to help fix Atlantic City, the market got pessimistic.
Atlantic City’s debt slipped to “junk status” by credit rating agencies Standard & Poor’s and Moody’s, citing the city’s deepening debt woes and looming prospect of municipal bankruptcy.
“The implantation of an emergency managers signals to Standard & Poor’s that the state does not view the city as capable of resolving its challenges without outside intervention,” credit analyst Lindsay Wilhelm said in a statement.
Mayor Don Guardian thinks the credit agencies are taking a narrow view of Atlantic City’s fiscal health.
“It’s the market relying on the information they heard, not having a whole lot more research of anything else that’s going on in the city,” Guardian said. “But it’s not surprising. How can you appoint two guys with expertise in bankruptcy and not expect the bond rating to go down? Nothing shocks me anymore.”
It comes at an especially bad time, as the city is trying to sell off $12.8 million in debt the city borrowed in 2013 to pay for Superstorm Sandy-related repairs. The city has until Tuesday to find a buyer, or repay noteholders the money.
Given the offered interest rates, only one potential buyer is being considered seriously, Guardian said. The mayor would not reveal details about the buyer.
“Once we can lock in the interest and the terms the answer is going to be yes, but we haven’t reached that stage yet,” he said, noting that the city has never defaulted on its debt.
And despite the cautionary language of the credit agencies, Guardian said it’s a “very illogical conclusion” to think Atlantic City will declare bankruptcy.
He said New Jersey Senate President Steve Sweeney has a plan to “cure the problems in Atlantic City.”
Among them, a proposal to stabilize casino property values for 15 years; a plan to divert money from the Casino Reinvestment Development Authority to paying down the $344 million in municipal debt; and cutting millions from the cost of running city government and schools.
“The state of New Jersey has taken great pride in making sure, since 1932, no municipality has had a bankruptcy,” Guardian said. “You need to dig yourself out of troubles on your own.”
As gambling has grown in neighboring states, Atlantic City casinos have struggled. Four shut down last year and another is in danger. That has translated into property tax revenue dropping dramatically, even as rates charged to homeowners has been hiked.