Standard & Poor’s Global Ratings have upgraded Atlantic City’s bond rating slightly as the city—through New Jersey’s fiscal control of the resort—has settled most of its casino tax appeal cases.
The ratings agency upgraded the city bonding rating from CCC to CCC+. The new rating means the city’s bonds carry substantial risks, a slight uptick from the former rating which said the city’s bonds were extremely speculative, according to the Press of Atlantic City.
This year, the state—which took over the city’s finances in November 2016—settled more than $300 million in casino tax appeals for $139 million.
“The upgrade and stable outlook reflect our opinion of the city’s improving financial performance and settlement of significant unfunded tax appeals,” said Timothy Little, S&P Global Ratings credit analyst. “Additionally, while current and projected cash flow statements have not been provided, the city and state have indicated they will continue to make debt service payments on time and in full, including $6.4 million due by Nov. 1 of this year.”
In February, the state agreed to a $165 million tax appeal for $72 million with Borgata Hotel Casino and in August, the state settled more than $137 million in tax appeals with various casino properties for $67 million.
“By settling outstanding tax appeals for a fraction of what was demanded by casinos and reducing overly generous union salaries and benefits, the state has taken action in a way that the city was unable or unwilling to do,” Lisa Ryan, spokeswoman for the state Department of Community Affairs told the newspaper. “However, there remains more work to be done, and we cannot lose sight of the fact that the city’s operating budget will be hampered by structural challenges that started many years ago and will take significant time to fix.”
Also, ratings agencies aren’t exactly bullish on the city’s casino industry as the prospect of Hard Rock International re-opening the former Trump Taj Mahal—and the possible re-opening of the closed Revel casino in the future—has many worried that the city will again see its casino industry oversaturated, which could lead to more casino closings in the resort.
“While there could be short-term economic and budgetary gains, they are unlikely to improve state credit quality. With declining tribal gaming revenues in Connecticut and the erosion of the Atlantic City gaming monopoly in New Jersey, long-term risks from commercial casino gaming are an ongoing credit risk,” according to a Standard & Poor’s report. “As states in the region continue their gambling expansion, coupled with the region’s weak demographic trends, the likelihood that these revenues will meaningfully supplement state revenues over the long term diminishes and will have long-term credit implications.”
