Atlantic City default and payless payday possible in coming weeks

21 July 2016

by Maria Amante

 

Atlantic City, which ran out of cash earlier this month, may not be able to pay workers on 29 July or make a 1 August bond payment, multiple sources tell Debtwire Municipals.

 

Requests for comment from Mayor Don Guardian’s (R) chief of staff, Chris Filiciello, were not returned.

 

The city owes about USD 7m to workers in July payroll expenses, after workers agreed to switch to a monthly payroll schedule to avoid shutdown earlier this year. A debt service payment of about USD 3.4m is due 1 August for USD 16.35m of Series 2011 general improvement bonds, which are not insured, and USD 15.75m of Series 2012 general obligation bonds, which are insured by Assured Guaranty.

 

The last bill the city was unable to pay, a USD 8.5m payment to the Atlantic City Board of Education due 15 July, was covered by the state.

 

Guardian previously said all forthcoming payments would be made in an interview with Debtwire Municipals.

 

Tammori Petty, spokeswoman for the Department of Community Affairs, declined to comment on the situation.

 

The city’s cash position hinges on a loan agreement with the state and collection of August property taxes, which will begin 1 August.

 

The state sent the city the loan document for review early this week, Petty said, but declined to discuss the terms of the proposal, prepared by Gibbons PC, as reported. Before the loan can be executed, the Atlantic City City Council must approve the terms and conditions, but have no meetings scheduled until next month.

 

The proposal offers USD 75m to the city but requires the city make its annual pension and health care contributions, a source familiar with the matter said. The city delayed the USD 37.2m 2015 pension and health benefit contributions at the recommendation of the Governor’s Advisory Commission on New Jersey Gaming, Sports and Entertainment in 2014 and former Emergency Manager Kevin Lavin. Both the commission and Lavin recommended deferring the 2016 contribution as well.

 

Atlantic City’s pension plan is administered by the state and has made full contributions nearly every year, with the exception of 2009 and 2015, as reported.

 

The city retained NW Financial and Public Financial Management as financial advisors and McManimon, Scotland and Bauman, LLC as bond counsel as it prepares a five-year plan for financial stability and avoid a state takeover.

 

Atlantic City is rated Caa3/negative by Moody’s Investors Service and CC/negative by Standard & Poor’s.

 

A USD 1.6m tranche of 4% Series 2011 general improvement bonds last traded in odd lots at 84.3 to yield 40.028% on 19 July.