NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns a long-term rating of A- with a stable outlook to the Casino Reinvestment Development Authority, of New Jersey, Luxury Tax Revenue Bonds, Series 2014.
The Bonds are secured by a gross lien pledge of Luxury Tax revenues that are levied and collected within Atlantic City. Luxury Taxes are generated from charges on hotel room rentals, the sale of alcoholic beverages, and the purchase of tickets or admission to entertainment events within Atlantic City. Luxury Taxes are not collected on items that are offered on a complementary basis.
The Series 2014 Bonds are being issued for the purposes of refunding the Series 1999 and 2004 Luxury Tax Revenue Bonds that were issued by the New Jersey Sports and Exhibition Authority ‘NJSEA’. Bond proceeds will be used to fund capital improvements at the Atlantic City Convention Center, for the payment of a litigation settlement amount related to the Convention Center, to fund the debt service reserve fund supporting the Series 2014 bonds, and to finance the cost of issuing the bonds.
Despite ongoing declines in casino gaming operations within Atlantic over the last several years, which is primarily due to increased regional gaming industry competition, Atlantic City remains a tourist destination offering gaming, entertainment, retail shopping and beachfront activities. KBRA views the Luxury Tax as providing adequate coverage for payment of the Series 2014 Luxury Tax Bonds, as illustrated under the KBRA stress test. Uncertainty remains regarding the future level of Luxury Tax revenues, including the potential for further declines in gaming operations, further hotel closures and the risk of significant damage from hurricanes or storms. KBRA notes that a significant disruption in Luxury Tax revenue collections for a sustained period of time, resulting from any of the aforementioned uncertainties, could put downward pressure on the credit rating of the Luxury Tax revenues bonds.
The bonds are governed by documents that clearly define the revenues pledged for debt service, lien structure, parties responsible for collection and payment of debt service, and bondholder protections that include a fully funded debt service reserve fund and additional bonds test requiring 1.50x coverage. KBRA conducted a stress test to model the potential effects of the recent hotel closings and potential further declines in casino operations on future Luxury Tax revenue collections. The results of the stress case projection indicate an adequate MADS debt service coverage of 1.34x from the revenues projected to be available under the KBRA stress test.
This rating is based on KBRA’s U.S. Special Tax Rating Methodology, published on August 21, 2012. In the process of assigning the rating, KBRA reviewed multiple sources of information, and met with the CRDA management team.
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