Moody's Cuts Atlantic City, NJ's, GO Rating to 'Caa1'; Outlook Negative

Moody's Investors Service has downgraded Atlantic City's GO debt to Caa1 with a negative outlook from Ba1. This action resolves the review for possible downgrade that we initiated in December 2014. The city currently has $344 million of outstanding long-term GO debt and $397 million of total debt.

SUMMARY RATING RATIONALE

The downgrade to Caa1 reflects the appointment of an emergency management team of two bankruptcy specialists mandated to consider debt restructuring, which could involve a loss to bondholders. The increased risk of default further arises from the city's looming $12.8 million note maturity on February 3. This is a rapid, dramatic change from the State of New Jersey's (GO A1/ negative outlook) 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.

OUTLOOK

The negative outlook reflects the evolving situation, including the possibility of a material impairment of bondholders through a debt restructuring.

WHAT COULD MAKE THE RATING GO UP

• Timely repayment of all debt obligations with expressed commitments to honor future obligations

• Adoption of legislation that fully stabilizes or meaningfully augments city revenues

WHAT COULD MAKE THE RATING GO DOWN

• Default on debt obligations

• Discontinued or significantly lower liquidity support from the state

• Bondholder recoveries under 90% in a potential debt restructuring.

OBLIGOR PROFILE

Atlantic City is located on coast in southern New Jersey in Atlantic County (Go Aa2/negative). Its economy is based primarily in the casino industry and the economy is primarily tourism based. The tax base is still large, at $11.27 billion in 2014, and will remain large, despite continued contractions.

LEGAL SECURITY

The bonds are secured by the borough's unlimited ad valorem tax pledge.

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