There has been much talk about the revitalization of Atlantic City. Well, the conversation is turning into a reality.
On Nov. 1, Moody’s upgraded Atlantic City’s credit rating four spots. That is excellent news for the city that is hoping to put its darkest days behind it.
Gov. Phil Murphy and Lt. Gov. Sheila Oliver issued a joint statement about the upgrade on Friday.
“Once again, we are seeing that our collaborative and cooperative approach to turning Atlantic City around was the right path to take. This is a tremendous step in the right direction, and we are committed to working with local leaders to ensure the city’s long-term sustainability and financial viability.”
Atlantic City’s credit rating on the rise
Atlantic City’s credit rating has never been much to write home about. Moody’s first assigned the city an A3 credit rating in 2000.
That rating put Atlantic City on the lower end of being investment-grade. The credit rating did rise briefly but started on its downhill slide in 2010.
Since then, Moody’s outlook for Atlantic City has remained negative, even though there have been some positive events. Some of those events include the state taking over the management of the city and balancing the budget.
Before the recent upgrade, Atlantic City was at a Caa3. Moody’s describes Caa3 as “judged to be of poor standing and are subject to very high credit risk.”
Atlantic City has been at Caa3, Moody’s third-lowest rating, from April 2016 until last week. The upgrade to B2 is the first positive move for the city in a long while.
‘Credit positive’ for Atlantic City
A statement from Moody’s in September had an impact on the positive rating move. It said, the “continuation of state oversight and proposed long-term plan are credit positive.”
Atlantic City Mayor Frank Gilliam spoke of the favorable credit move to the Press of Atlantic City.
“The Moody’s credit upgrade is one more step in the right financial direction for Atlantic City. We still have a lot of work to be done, but the City of Atlantic City looks forward to continued growth.”
Standard & Poor’s Global Ratings also upgraded the city’s credit rating from CCC+ to B.
Don’t get too excited, though. Atlantic City remains a high credit risk. It’s just a bit less of one now.
Why a Moody’s credit rating matters
Credit ratings matter because it affects how and if lenders lend money. When a city is trying to emerge from financial despair, borrowing money and affordable rates are important.
Moody’s, along with Standard & Poor’s and Fitch, comprise the world’s Big Three credit rating agencies. According to The Guardian, the Big Three rate about 95 percent of the world’s debt.
That’s a lot of power held in a few hands. The outlook the agencies give will either help an organization secure funding or will leave potential investors leery.
Nervous investors charge higher interest rates to help offset the risk. When interest rates are high, it is harder to repay the debt, and it is more likely to cause a default. It is a vicious cycle.
Want to know how much the power of Moody’s credit rating and outlook has?
In 2009, Moody’s released “Investor fears over Greek government liquidity misplaced.” Six months later, the country went into a financial meltdown.
The credit rating outlook for Atlantic City is good
Moody’s indicated the positive outlook for Atlantic City might result in another positive adjustment in the next 12 to 24 months. However, the city would need to jump five spots to get into the lower end of the investment-grade range.
Moody’s said the new rating reflects:
- The resurgence of the casino industry, including the opening of Hard Rock Atlantic City and Ocean Resort Casino.
- The legalization of NJ sports betting along with the opening of nine brick-and-mortar sportsbooks and eight online sportsbooks.
- Diversifying the city’s tax base
- The casino payment-in-lieu-of-taxes program.
Lisa Ryan, a spokeswoman for the state Department of Community Affairs, also spoke of the credit upgrade:
“The ratings agencies clearly recognize the significant hard work and collaboration being done by Atlantic City and the state to return the city to sound financial footing.
“Using the recently issued Atlantic City Transition Report as a guideline and the newly created Atlantic City Executive Council as a catalyst, we are optimistic that the city, state and partners in the civic, private, educational and philanthropic sectors can continue to make progress in such areas as planning and development, economic diversification, employment initiatives and budgetary practices, which will help keep the positive momentum going.”