Atlantic City’s credit rating sunk deeper into junk territory Monday, as Moody’s Investors Service downgraded the city’s general obligation rating to Caa3 from Caa1.
The new rating reflects the expectation that bondholders could 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,” Moody’s said.
Moody’s said the rating could be upgraded if legislation is adopted that “meaningfully augments city revenues and materially reduces the structural budget deficit.”
The city has $437 million in debt and a structural budget deficit that tops $60 million.
A bill to allow state officials to take over Atlantic City government in the name of fiscal remediation passed the state Senate but remains stalled in the Assembly, where Speaker Vincent Prieto, who says the bill would unfairly allow the state to cancel labor contracts, refuses to post it for a vote.
Monday’s downgrade “incorporates renewed signals from the state that bondholders will face losses as part of a possible debt restructuring,” Moody’s said in a news release. “The negative outlook reflects ongoing risks from the absence of a plan to restore the city's financial health.”
The city for months has been blocked from borrowing at practical interest rates; its prior, Caa1 rating was already far below investment-grade.