Atlantic City has accepted one of three offers for million in short-term notes to help pay off a .8 million loan that came due this month.
Atlantic City Mayor Donald Guardian, speaking at a statewide Republican convention, said the city was having trouble selling the notes, but received three offers at the end of January. On one offer, the interest was too high while on another the city would have had to pledge state aid.
The winning offer met the city’s needs, the mayor said.
The agreement was later reported as a negotiated sale of 5 percent notes with Bank of America Merrill Lynch.
“It’s a great interest rate given our situation,” Guardian told Bloomberg News.
Under the plan, negotiated by city officials and Atlantic City’s new emergency manager, the city will pay $300,000 to borrow $12 million for six months at a 5 percent interest rate. That is nearly three times as much as the 1.75 percent coupon it paid to issue similar debt just a year ago, Bloomberg reported.
The city will kick in the remaining $800,000.
Guardian said the city does have the cash to pay off the full loan and was able to wait for an offer that wasn’t too expensive.
The original bond anticipation notes were being used to pay for infrastructure projects after Hurricane Sandy. Originally issued in 2013, the notes were rolled over last year, according to Bloomberg.
The sale comes after the city’s bond rating has been lowered to junk status by major ratings agencies and after New Jersey Governor Chris Christie appointed an emergency manager to handle the city’s troubled finances. The manager is expected to come forward with a plan to right the city’s finances in 60 days.
Officials have said bankruptcy for the city is not a sure thing, but many analyst feel that the appointment of the management team makes it likely.
While the $12 million sale was a good sign for the city, analysts are waiting to see how the city will handle a debt service payment of approximately $3.35 on Feb. 15 followed by repayment of a $40 million state loan on March 31.
The city has been reeling as it loses major tax revenue through the closing of four casinos in the resort and numerous tax re-assessments of its remaining casinos.
