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S&P lowers Atlantic City general obligation rating by four notches

Atlantic City
John Greim | LightRocket | Getty Images
Atlantic City

Standard & Poor's Ratings Services cut Atlantic City's rating four notches to junk at 'BB' on Tuesday, the second Wall Street rating agency to issue a super-downgrade in the days before the city plans a $12 million note sale.

On Friday, Moody's Investors Service, which had already rated the city's debt non-investment grade, cut its rating on the financially distressed New Jersey gambling hub six notches deeper into junk.

Both credit rating agencies said they were concerned that municipal bankruptcy and bondholder losses were a possibility after New Jersey Governor Chris Christie, a likely 2016 Republican presidential candidate, appointed an emergency management team last week with ties to Detroit's historic bankruptcy. Christie's mandate explicitly ordered the team to consider the option of debt restructuring through bankruptcy.

First, however, the city must get through the next few weeks. It plans to roll over $12 million of short-term notes that come due Feb. 3 by issuing new notes. That deal was supposed to take place on Tuesday but was postponed because a blizzard disrupted activities throughout the U.S. East Coast.

If the city has trouble accessing capital markets to sell the notes in the next several days, it could end up having to repay noteholders on or near the Feb. 3 deadline.

Atlantic City "absolutely" has enough money to pay off the maturing notes if it needs to, revenue director Michael Stinson told Reuters on Tuesday.

The notes were originally issued in 2013 to pay for repair projects after Hurricane Sandy.

The city has never defaulted on its debt, according to a preliminary official statement (POS) for the note sale.

If the city has to repay noteholders, it would place even more pressure on an already strained budget for this fiscal year, which ends on Dec. 31.

The once-strong resort town on the Atlantic Ocean is projecting about $227.3 million of revenues for 2015, or 13 percent lower than last year, the POS said.

The city must wait until Christie and state lawmakers finalize a state budget, including aid to municipalities, by June 30.

The city's property tax base has been cut in half over five years because of the recession and gambling competition from nearby states.

Six million fewer visitors came in 2013 than in 2009, and casino employment has fallen by 43 percent to about 25,300 since 2005, according to the POS.