Atlantic City´s credit rating holds, outlook improved, says Moody´s

Moody’s Investors Service affirmed Atlantic City’s Ba3 credit rating Tuesday but changed the city’s outlook from stable to positive. The improved outlook is due, in part, to the collaborative effort between the state and city to navigate the fiscal challenges facing the municipality, particularly during the coronavirus pandemic when the resort’s primary economic engine — its nine casinos — has been reporting declining revenues.

While the city’s credit rating remains below investment grade, the new outlook introduces the possibility of an upgrade in the next 12 to 24 months, the agency said.

“The new, positive outlook reflects our expectations that, despite the pandemic, Atlantic City will continue making strides in improving its governance and finances,” according to the Moody’s report. “While the pandemic has negatively impacted the casino industry, the negative credit consequences are relatively offset by the improved management of city operations and the more predictable PILOT (payment in lieu of taxes) payment structure for casinos."

Council President George Tibbitt said Wednesday the positive outlook was welcome news.

“(It’s) a credit to the administration and council members working together to move the city forward,” Tibbitt said, adding the city and state have been reducing spending for several years. “This is a work in progress. The pandemic didn’t cause us to save money. This is a five-year plan.”

Atlantic City has been under direct state oversight since 2016 because of the Municipal Stabilization and Recovery Act, which is set to sunset next year. Moody’s said it looked favorably on reports that an extension of Trenton’s oversight was likely.

“The state’s future oversight role remains to be determined and will be of critical importance to the city’s future credit,” the Moody’s report states.
The state Department of Community Affairs, the agency with direct oversight of Atlantic City, said the outlook upgrade demonstrated the effect of the city’s ongoing revitalization.

“This outlook improvement occurred even in the face of significant economic challenges posed by the COVID-19 pandemic and is the result of the strength of both the city’s present finances and projections for the next five years. We believe that if it wasn’t for COVID-19, the city might have even seen a ratings upgrade,” said Lisa Ryan, spokesperson for the DCA. “The city is well-positioned for continued positive outcomes for its economy and residents.”

Tibbitt said Trenton’s involvement was a “necessary partnership” because of the city’s heavy reliance on state aid.

“The homeowners and small business owners of Atlantic City cannot afford any more tax increases. So if the state was to pack up and leave tomorrow, those are the people (who) would be in complete trouble,” the council president said.

The lingering fiscal effects of COVID-19 restrictions on Atlantic City’s casinos highlighted the city’s “critical need for diversification” of its economy, the credit agency said.

“Management reports that developers have begun expressing more interest in the city and a number of additional projects are expected to start soon. Although these are positive signs, diversification will take a considerable amount of time to have a material economic impact,” Moody’s wrote.