Atlantic City default possible on 1 April; Assured will stand by policy

This piece first published March 16, 2016, Debtwire Municipals
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Without a cash injection, Atlantic City could default on a USD 664,688 debt service payment due 1 April, multiple sources tell Debtwire Municipals.

The debt is insured by Assured Guaranty and issued as USD 5.45m Series 2012 pension refunding bonds. Debt service payments are due on 1 April and 1 October and the debt is backed by a general obligation pledge.

In the event of a default, Assured Guaranty is prepared to step in and make the payment, said Ashweeta Durani, the insurer’s spokesperson.

“As with all our guaranteed bonds, investors that hold bonds insured by Assured Guaranty can be certain they will continue to receive full and timely payment of scheduled debt service when due in accordance with the terms of Assured Guaranty’s insurance policies,” Durani said.

The city is expected to run out of cash on 1 April. Last week, Guardian said in the event of insolvency, he would prioritize funding services above debt service payments, as reported. Atlantic City submitted a contingency plan for insolvency to the state, Mayor Don Guardian said in an interview with Debtwire Municipals.

Guardian also said he asked the state for a bridge loan pending approval of legislation creating payments in lieu of taxes (PILOTs) for casino properties in Atlantic City – the legislation also includes additional aid for the city.

“We have (discussed the loan with the state) and the contingency plan, the state has information about what’s going to happen as money’s running out and the city’s alternate plan,” Guardian said.

Governor Chris Christie (R) vowed he would not sign the recovery legislation if a letter is changed in either bill yesterday in a press conference. He said if the city runs out of money, it would be the fault of Assembly Speaker Vincent Prieto (D). Christie said he would not allow any further “Band-Aids” for Atlantic City.

Guardian declined further comment on the content of the contingency plan and status of the loan. In a follow-up email yesterday, Chris Filiciello, Guardian’s chief of staff, said the city is reviewing all options with regard to a possible default.

“We are in contact with the state and preparing contingency plans for all possible outcomes,” Filiciello said.

As the bonds do not have a trustee or paying agent, it’s the city’s responsibility to make the claim to Assured itself, the first source familiar said. If the city does not make the claim, the insurer would work with Depository Trust Company, the securities depository, to ensure bondholders get paid, the first source said.

Tammori Petty, spokeswoman for the New Jersey Department of Community Affairs declined to comment on a possible loan or default. The state previously loaned Atlantic City USD 40m in December 2014 which was repaid via a 2015 bond issuance.

Much of what happens next is dependent on the PILOT’s companion legislation, a proposal to allow the state take over Atlantic City government. The takeover proposal would provide the state additional supervisory powers, including the ability to amend collective bargaining agreements and sell municipal assets.

Both pieces of legislation were approved by the state senate on Monday (14 March) but may not make it to the governor’s desk. Prieto said he would not post the takeover bill for a vote in the assembly because of the collective bargaining provisions.

Some of the powers included in the takeover proposal may already exist within New Jersey law, as reported.

A USD 585,000 tranche of 3.32% Series 2012 pension refunding bonds due 1 April last traded in odd lots at 100.493 to yield 1.502% on 21 December 2015.

 

 

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