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Is the Atlantic City rescue plan enough? One credit agency has doubts

Friday, June 10, 2016   (0 Comments)
Share | 06/10/16

A Wall Street credit ratings agency has warned that Atlantic City's financial problems are unlikely to be solved by rescue legislation signed by Gov. Chris Christie earlier this month. Analysts at S&P Global Ratings said it's possible the city could face defaulting on its debt, needing to restructure its debt, or filing for bankruptcy if a better plan isn't produced. The agency also said it wouldn't upgrade the city's bond rating in the wake of Christie's signing, leaving it at its current CC-negative junk rating.

"The long-term prospects of a full and complete recovery of the city remain elusive absent a credible plan to restore fiscal solvency," analysts Timothy W. Little and Jane H. Ridley wrote in the report, released Tuesday. "Despite aid received by the city, it is our opinion that some form of debt restructuring or debt impairment is highly likely unless a credible recovery plan that protects the city's promise to bondholders is produced."

Plus, the analysts said the state's handling of the Atlantic City crisis shows that the state's support system for municipalities is not as strong as it once was. No municipality in the state has gone bankrupt since 1938, but experts say Atlantic City being put on the brink of bankruptcy as state lawmakers argued over a rescue plan for months did not reflect kindly upon New Jersey's reputation. Atlantic City saw its tax based slashed by 70 percent with the closure of four casinos in recent years. The city is also more than $550 million in debt. 

If the state rejects the city's proposal, the state can take over large parts of the local government, allowing its to break union contracts, sell city assets, and more. Still, S&P's analysts said they "remain guarded regarding the city's long-term financial recovery." "The city continues to operate with no resolution on how to address its significant outstanding unfunded tax appeals, other off-balance-sheet liabilities, or a credible plan to eliminate its structural imbalance," they wrote.

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