Atlantic City Avoids First NJ Municipal Default Since Great Depression, Makes $1.8 Million Bond Payment

Atlantic City Avoids First NJ Municipal Default Since Great Depression, Makes $1.8 Million Bond Payment

Tyler Durden’s pictureSubmitted by Tyler Durden on 05/02/2016
http://www.zerohedge.com/news/2016-05-02/first-puerto-rico-now-atlantic-city-mayor-holds-press-conference-ahead-looming-defau

Update: it is only Puerto Rico who will be on the default docket today because in the last possible minute, Atlantic City's mayor Don Guardian announced that his city had made the required $1.8 million in interest payments due May 1, averting what would have been New Jersey’s first municipal default since the Great Depression as state lawmakers bicker over how to assist the troubled gaming hub.

As he noted during his press conference, Mayor Don Guardian had said last week that he hadn’t decided whether to meet the city’s obligations on tax-exempt bonds sold in 2012. Some of the securities are insured by Assured Guaranty Ltd., which would have been obligated to pay holders interest on the bonds. Because May 1 fell on a Sunday, the city has until Monday to come through.

The city made the payments Monday morning, Guardian said in a City Hall news conference.

The decision averted a worsening of the city’s long-building fiscal crisis. The community has already lengthened pay periods for its workers to avert a shutdown of services as it tries to stave off insolvency. Governor Chris Christie’s rejection of measures that would have diverted gambling funds to the city created a $33.5 million hole in its budget. Christie and state lawmakers have yet to agree on a plan to rescue the 39,000-resident seaside town.

For now the chip can has been kicked, and markets seem to love it – the S&P just hit intraday highs on this news.

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Just a day after Puerto Rico's governor pulled the default rip-cord, the clock is ticking for Atlantic City Mayor Don Guardian.

 

The city must decide today whether to pay a $1.8 million debt obligation, or be the first New Jersey municipality to default since the Great Depression.

According to the Press of Atlantic City, the city is expected to run out of money in a matter of weeks, and the short-term picture looks grim. Not only is a $1.8 million bond payment due today, but a $7 million payroll payment is set for Friday as well.

With the city sitting on $500 million in debt, and with budget deficits topping $100 million, default and perhaps bankruptcy looks imminent without a major bailout from the state.

New Jersey Governor Chris Christie had reportedly reached an agreement to take over Atlantic City's finances back in January in order to try and stem the fallout on New Jersey's tourism, and also the credit rating concerns that other municipalities would have to deal with in New Jersey, but the deal has fallen apart.

"I can't trust him. Steve and I thought we had a deal with an honorable guy. Now he wants me to call him? And say what exactly? You want a new deal? I try only to deal with honorable people." Christie was quoted as saying regarding the deal falling through.

If the city defaults and subsequently enters into bankruptcy, the plea for helicopter money may be too much for the Fed to ignore, as other cities will surely follow suit.

A press conference is set for 11am EST today which you can watch live here


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