Moody’s has put on hold the issuer’s rating of Atlantic City due to the unstable economic situation, increased governance and social risk, as well as income inequality. Despite the ongoing challenges, its outlook has been improved due to the city’s casino property taxes programme, the growth in online gambling and the city’s continued efforts for better governance.
Reasons Behind the Improved Outlook
Credit rating agency Moody’s affirmed Atlantic City’s long-term issuer rating at Ba3 and improved its outlook from stable to positive.
Moody’s believes that despite the ongoing health crisis, Atlantic City will continue striving for better governance and a more stable financial situation. The casinos in the coastal resort city were closed for the whole second quarter of 2020 and altogether reported a 32.3% decrease in net revenue during the third quarter of 2020, while gross operating profit was down by 37.2%.
However, the negative consequences on the economy are partially compensated by the better management of the city’s day-to-day operations and the effective implementation of its 10-year casino payment-in-lieu-of-taxes program (PILOT).
The city is also expected to boost its financial state due to the growing online gambling segment. Internet Gaming Win is up from $45.2 to $93.5 million in October, which corresponds to a 106.7% increase from the previous month. Sports Wagering Gross Revenue amounted to $58.5 million for the month, according to a report from the New Jersey Division of Gaming Enforcement.
Another point in favor of Moody’s better outlook is the statement made by the state and city that even after the current governance regime expires, there will be some degree of oversight in place.
Credit Rating Continues at Ba3
Moody’s did not boost the city’s rating due to the ongoing unstable economic situation, which will depend on the development of the health crisis. Since the reopening of casinos in July, operators reported 251 cases of Covid-19 by the beginning of November.
One of the big three credit rating agencies also says that the city’s exposure to governance and social risk are additional factors and emphasizes the income inequality, which is evident from the high unemployment rate compared to the city’s luxurious casinos.
The rating is also affected by the strong oversight by the State of New Jersey, which is of utmost importance for the city’s well-being and progress. The state’s future oversight role is yet to be decided and will have a strong impact on the city’s future credit quality, the credit rating agency says.
Steps Towards Future Upgrade
Some of the factors that could have a positive effect on the city’s rating moving forward are better liquidity and increased budget reserve, diversification of its economy, stabilization of its ratable base, as well as a rise in the resident wealth and income, Moody’s concludes.