Atlantic City's credit rating upgraded by Moody's

by Administrator

ATLANTIC CITY — Moody's Investors Service upgraded the city's credit rating two notches to start the new year, a reflection of the progress made under the state takeover.

The Ba3 rating from Moody's is six notches higher than Atlantic City's lowest rating of Caa3, which it held from April 2016 to November 2018, according to the investment agency. 

In November, Standard & Poor's Global Ratings upgraded the city’s general obligation bonds and gave a positive outlook to the city’s financial performance. 

Moody's upgraded Atlantic City "because of the city's reduced, albeit continued, financial and economic stress," according to a release from the agency. The new outlook "connotes stability" and the expectation that the rating will not change for the next 12 to 24 months.

"The upgrade also reflects the successful settling of long-term, open-ended liabilities and the related improvement in city finances, the successful implementation of the casino PILOT (payment in lieu of taxes) program, the recent health of the casino industry and the ongoing efforts to diversify," Moody's said. "The rating is also informed of the continued, strong oversight by the State of New Jersey."

Council President George Tibbitt said the credit rating upgrade was the result of a collaborative effort between city and state officials.

"I think it’s wonderful that the lending community is recognizing the hard work that the city is doing with the state overseers and the responsible work we’ve been doing," Tibbitt said. "It's very important to work with the state in a positive way and get the confidence from the lending market. We've been doing the right things, making the tough decisions, and we're starting to move forward."

The state assumed full control of Atlantic City under the Municipal Stabilization and Recovery Act of 2016, a bill signed into law by former Gov. Chris Christie in November of that year. Moody's said that "Atlantic City's recovery has been largely overseen by extraordinary state oversight, which is set to expire in less than two years." The agency further said it viewed the continued oversight by the state as "critical to the city's continued well-being and progress."

Reaction to the upgrade was not universally positive.

"The Moody's bond rating is meaningless," said Jim Kennedy, a local economist and former executive director of the Casino Reinvestment Development Authority, on Twitter. "(Atlantic City) can't issue bonds on their own. They are unmarketable. The municipal credit is supported by a 100% state guarantee. The (slight) upgrade is like getting extra points for good behavior."

The state Department of Community Affairs, the agency with direct oversight of the city, said the relationship between the city and state is "strong," and lauded the positive direction for Atlantic City.

"The Moody's upgrade and the S&P Global Ratings upgrade this past November show that we are on the right track in Atlantic City," said Lisa Ryan, spokeswoman for the DCA, in a statement Friday. "We are proud that Atlantic City has come such a long way, but we are also keenly aware of the considerable work that remains. ... We envision 2020 being a very productive year, and to start the year with another ratings upgrade provides both validation and inspiration for the work we are doing."

Ryan said Moody's analysis accurately points out that Atlantic City "must diversify its economy, address its high poverty rate and protect itself against storms and flooding if it is to truly achieve health and stability."

Moody's noted that although the recent progress has "materially improved the long-term outlook," Atlantic City remains "highly pressured." Credit challenges for Atlantic City remain because of several factors, including a heavy reliance on the casino industry, the elevated debt burden, weak resident wealth and income, and the risk of regional gaming competition. Any future contraction of the casino industry or the withdrawal of state oversight could lead to a downgrade, Moody's warned.

Atlantic City's considerable debt will "remain elevated for the foreseeable future," Moody's said. The city's debt at the end of 2019 was about $366.9 million, including $357.3 million in municipal bonded debt and $9.6 million in guaranteed utilities debt. The total debt burden was 15.2% of the equalized value in 2019, according to Moody's.

"This ratio is exceptionally large for a municipality; however, much of this debt is due to the casinos dropping off the city's assessed and equalized value (as a result of the PILOT,)" Moody's said. "Were the casinos to be counted, the ratio would still be quite elevated but not as extraordinarily high as it is now."