This piece first published December 4, 2015, Debtwire Municipals
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Atlantic County Superior Court Judge Julio L. Mendez granted a temporary restraining order today on behalf of Atlantic City preventing The Borgata Hotel and Casino from taking action to collect upon a 2014 USD 88m tax settlement.
Michael Stinson, Atlantic City’s finance director, said in an interview with Debtwire Municipals that the city has about USD 40m in cash on hand on 3 December. It honored a debt payment of USD 2.7m and will honor a payment of about USD 10m on 15 December, he said.
But the city will not make the USD 60m payment due 19 December to the Borgata, Stinson said, and directed further questions to Jason Holt, Atlantic City solicitor. Holt did not respond to a request for comment.
Tammori Petty, spokeswoman for the Department of Community Affairs, said the department “is not in a position to comment” about the looming 19 December Borgata payment.
Atlantic City and the Borgata agreed to the USD 88.25m settlement for tax years 2011-2013. The settlement also lowered the casino’s 2014 and 2015 property valuations, and awarded the casino a USD 17.85m credit for 2014 and cash credits of USD 5m for 2014 and 2015.
The city also agreed to monthly payments of USD 150,000 and to pursue debt financing “as soon as practicable” to pay for the appeal. After nearly a year of USD 150,000 payments, Borgata filed papers with the Tax Court of New Jersey claiming the city breached the settlement agreement.
In response, Atlantic City requested yesterday that the court restrain Borgata from pursuing this action; Atlantic County Judge Julio L. Mendez granted that request today and set a hearing date for 13 January.
“It gives the city breathing room and hope for a sensible resolution to avoid what people say is the inevitable. The city is pleased and overall hoping to resolve this favorably,” said George Frino of DeCotiis, Fitzpatrick and Cole LLP, who represents the city, in an interview withDebtwire Municipals.
The restraining order offers temporary breathing room for Atlantic City, but doesn’t end its problems with the Borgata. The city owes USD 60m to Borgata on 19 December for property tax appeals from 2009 and 2010. The city petitioned New Jersey Supreme Court to appeal a judgment awarding the casino USD 50m plus interest for those years,as reported, but the court failed to accept the case.
In the filing yesterday, Atlantic City said it is unable to access the market without interested participants, state approval and a state backstop. It pursued financing unsuccessfully in 2014 and early 2015, failing to gather market interest, but issued more than USD 50m through two separate financings with state support in May, as reported.
“On account of the financial distress the city is experiencing, and its inability to access the capital markets to extinguish all tax liabilities, including that of the Borgata, it is not currently ‘practicable’ to seek financing inasmuch as the capital markets have been closed to the city,” according to the superior court filing.
If the city were required to immediately pay the Borgata, it would cause harm of “enormous” magnitude and threaten the functions of city government, according to the superior court filing. The city still seeks to explore debt financing options with New Jersey’s assistance.
The state is under “total control” of Atlantic City’s finances, and both are working to deal with the city’s financial distress, according to the filing. The city was first placed under New Jersey’s supervision in 2010 when a fiscal monitor was appointed, giving the state the ability to approve the city’s budgets and debt issuances. Atlantic City is also under the supervision of Emergency Manager Kevin Lavin, whom Governor Chris Christie appointed in January.
Joe Corbo, Borgata vice president and general counsel, did not respond to request for comment.
The city has about USD 371.1m in general obligation debt outstanding, according to the FY14 debt statement.
Atlantic City is rated Caa1/negative by Moody’s Investors Service and B/negative by Standard & Poor’s.
A USD 5.6m tranche of 3% Series 2012 tax appeal refunding bonds last traded on 4 December at 92.75 to yield 3.891% in odd lots.