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The city’s bond rating has received a downgrade from Moody’s Investment Services, as a result of the risk of a state aid cut to municipalities — particularly the type of aid received by cities such as Asbury Park.

Investors who buy bonds — basically, who are providing their money for a loan — look to Moody’s to advise them on the risk that a borrower such as Asbury Park will not repay them. The higher the risk, the more the interest rate that the investor will demand in exchange.

When Moody’s downgrades the credit rating, it can lead to a higher interest rate demanded by the bond buyer. Moody’s yesterday downgraded Asbury Park’s bond rating from Baa1 to Baa2. The rating can also affect the price of a previously issued bond when it’s sold between investors.

The investment service cited a New Jersey Superior Court ruling that the state must made a $1.6 billion pension contribution in the upcoming budget. As a result of that additional financial burden on the state, Moody’s said there’s an increased risk of a cut in aid to municipalities, particularly transition aid, which goes to the poorer cities of the state, such as Asbury Park.

“The downgrade to Baa2 reflects the city’s heavy reliance on state aid with limited flexibility to withstand cuts or delays in state aid. The rating also incorporates the city’s moderately sized seasonal tax base with low wealth levels, high unemployment, and elevated debt and pension obligations,” Moody’s said in its statement.

The Baa2 rating is still considered investment grade, but with speculative elements. The Moody’s statement says the rating affects approximately $39.1 million in outstanding general obligation bonds.

Click here for a link to the full Moody’s press release on the Asbury Park bond rating downgrade.

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