New Jersey Gov. Chris Christie’s apparent support for a renegotiation of Atlantic City’s debt could impair the credit ratings of other financially distressed New Jersey cities, Moody’s Investors Service has warned.
Near-broke Atlantic City is saddled with $245 million in debt to bondholders and $150 million to the Borgata casino in property tax refunds. In an interview last month, Christie said bondholders are “going to have to make sacrifices” to help stabilize the resort town’s finances.
Moody’s downgraded Atlantic City’s general obligation debt rating this week and, on Wednesday, it said Christie’s comment “provides another indication that the state is considering impairing the city’s general obligation bondholders, whether through a negotiated debt restructuring or possibly a Chapter 9 bankruptcy filing.”
“While Atlantic City is an extreme case and no other New Jersey municipality is currently facing such acute financial pressure, the state’s posture toward Atlantic City reduces the likelihood that it would rescue other financially distressed cities,” Moody’s said in a report.
The credit rating agency was referring to municipalities with poorer credit ratings, including Newark, Paterson, Trenton, and Union City.
Christie and other elected officials have been unable to agree on a rescue plan for Atlantic City, with both Atlantic City Mayor Don Guardian and Assembly Speaker Vincent Prieto opposing a bill that would give the governor control over the city’s finances.
Christie has said he will not allow Atlantic City to file bankruptcy but, according to the Philadelphia Inquirer, “it’s unclear what the governor would do should the city default on its debt.”
In downgrading Atlantic City’s debt to Caa3 from Caa1, Moody’s cited “the greater likelihood of default within the next year and higher probability of significant bondholder impairment given an ongoing political stalemate over an Atlantic City fiscal rescue package.”
“The Caa3 rating indicates an expected loss to bondholders of up to 35% of principal,” the ratings agency added.