One of the three major Wall Street rating agencies reported on Tuesday that Atlantic City’s finances were heading in a promising direction, despite COVID-19’s impact on the local economy and cratering revenue it wrought on the city’s nine casinos.
Moody’s Investors Services did not upgrade or downgrade the struggling seaside resort town, but rather, shift the existing Ba3 credit rating from a stable outlook to a positive one – still junk bond status, but up from the B2 rating the city had until Jan. 3.
“The new, positive outlook reflects our expectations that, despite the pandemic, Atlantic City will continue making strides in improving its governance and finances,” said David Jacobson, a Moody’s analyst.
The pandemic has devastated the casino industry, particularly the brick and mortar operations, which had to stay shut between March and July.
New Jersey’s casinos were allowed to reopen on July 4 weekend but suffered considerable financial losses at their in-person operations. Online revenue soared, as patrons either weren’t physically going to the casinos or opted to stay at home out of fear of contracting or spreading COVID-19.
Fitch Ratings downgraded nearly $215 million in luxury tax bonds of Casino Reinvestment Development Authority last month from BBB+ to BBB, citing the impact which the pandemic had on the state’s casino industry.
Moody’s on Tuesday said that the “improved management of city operations and the more predictable payment in lieu of taxes” arrangement from the casinos were both promising signs.
“In addition, the city’s current expectation is the financial impact on the city of the weak casino industry will be limited, particularly given meaningful revenue from online gambling operations,” Jacobson continued.
The city had been trying for years to move away from sole reliance on the casino industry.
During the Great Recession, the closure of five of the city’s casinos pushed Atlantic City to the verge of bankruptcy, prompting a state takeover in 2016 under then-Gov. Chris Christie, a Republican.
Since Democrat Gov. Phil Murphy took office in 2018, the Department of Community Affairs, which oversees the city, has seen their role as more of a collaborative one, rather than a top-down approach.
Lt. Gov. Sheila Oliver, who heads the DCA, said that the takeover will continue past 2021, which marks the end of Murphy’s first term in office.
Some of the economic diversification included the introduction of a Stockton University campus in the city, while AtlantiCare expanded its hospital facilities and South Jersey Industries set up a headquarters.
Ørsted said it plans to build a $1.6 billion offshore wind farm several miles off the coast of Atlantic City, capable of generating 1,110 megawatts of electricity, with Atlantic City as the nexus of the operation.
Moody’s warned that further declines in the casino industry, or the failure to further tighten their belt, could lead to a downgrade in the future. They currently have nearly $353 million in debt.
And the potential end of state oversight could be a damaging move for the city, Moody’s warned. But state and local officials have assured that nothing of the sort would happen in the near future.
“There’s no doubt in my mind, because the state’s involvement is still needed here,” Oliver said in an October interview. “The state still needs to be a partner with the city.”