If sports betting were a reality in New Jersey, this weekend would be a much-needed boon for Atlantic City. Spectators could flock to the seaside resort to place millions of dollars' worth of Super Bowl wagers, thus adding revenue to the hard-hit city's coffers.
That's hardly the case. The state's push to allow sports betting in New Jersey casinos and racetracks is tied up in a federal-level legal suit with the NFL and major sports leagues. Until that gets resolved, the city will remain plagued by high unemployment, crime and a rapidly eroding property tax base.
Now, Atlantic City is engaging in another type of gamble: convincing investors to buy its junk-rated bonds, only months after New Jersey threw it a $40 million lifeline.
This week city officials arranged a $12 million note sale to drum up capital to repay other debt coming due on Feb. 3. However, the sale of one-year notes was converted to a negotiated transaction, a sign that the struggling municipality could be having a hard time finding buyers.
It's no wonder. New Jersey Gov. Chris Christie recently signed an executive order appointing an emergency manager team to develop a financial-stabilization plan within 60 days. The plan may include "the adjustments of the debts of Atlantic City," a phrase that immediately signaled trouble to the bond market.
Adding to that, the team's special consultant is Kevin Orr, Detroit's former emergency manager who led that city through the biggest municipal bankruptcy in U.S. history. The appointment drew immediate comparisons to the Motor City's Chapter 9 restructuring and bondholder struggles.
"That statement, along with the appointment of two bankruptcy and restructuring experts, signals a paradigm shift in the state's tradition of support for its municipalities," warned analysts at Moody's Investors Services in a report. "It signals a limit to the state's willingness to provide the financial support necessary to prevent a municipality from defaulting or declaring bankruptcy."
This new approach, according to Moody's, indicates an increased possibility of default and/or bankruptcy, not to mention, sets a precedent for other financially troubled New Jersey municipalities, including Newark and Camden.
For that reason, Moody's dramatically slashed Atlantic City's general obligation rating six steps deeper into junk territory, to Caa1 from Baa1, indicating a high risk of default over the next five years. In the wake of the move, yields on some of the city's debt surged to record highs.
On Tuesday, Standard & Poor's Ratings Service followed suit, downgrading its rating four notches into junk status, and placing it on Credit Watch with negative implications.