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Atlantic City's pain reaches beyond its borders

Monday, April 11, 2016   (0 Comments)
Share | 04/11/16

Fallout from Atlantic City's financial meltdown could mean trouble beyond the gambling resort's borders. Should New Jersey leaders let Atlantic City default on its debts, it would bode ill for other financially distressed municipalities in the state. Financial experts contend they could face higher borrowing costs. “Bond markets don’t like uncertainty and we’re nothing but uncertainty right now,” said Marc Pfeiffer, a senior policy fellow and assistant director of Rutgers University’s Bloustein Local Government Research Center. 

A lack of clarity 
If Atlantic City becomes insolvent, it would take the state into unfamiliar territory. New Jersey hasn’t allowed a city to go bankrupt since 1932, during the Great Depression. “What will happen is, if Atlantic City is permitted to default or restructure its bonds or in any way impair what bondholders expect to receive, it will be unprecedented in New Jersey over the last 70 years,” said Pfeiffer, from Rutgers. “So, we can’t quite predict what will happen,” Pfeiffer said. “New Jersey has had a very favorable history of supporting it’s municipalities and their debt, so much so that the rating agencies and the bond markets recognize that and effectively give us some degree of extra credit when it comes to ratings, which results in some degree of lower interest rates compared to other entities. Because New Jersey has had this good reputation.”

Moody’s reported Tuesday that a recent Christie comment about bondholders making sacrifices “suggests the state may have reached the point of viewing a default as a desirable outcome.” But the Moody's report warned that a default would negatively impact the credit of other distressed cities, citing Newark and Paterson by way of example, “because it calls into question the state’s future willingness to support these cities.”

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