Tags: Harrisburg | Miss | Bond | Payment

Harrisburg Urged to Weigh Bankruptcy, May Miss Bond Payment

Friday, 03 Sep 2010 02:21 PM

A member of Harrisburg's city council says Pennsylvania's capital needs to seriously consider filing for bankruptcy in the face of hefty debt payments.

Harrisburg’s finances have been plagued by the cost of guaranteeing $288 million in debt related to a waste-to-energy incinerator that was built in the late 1960s. City officials have considered bankruptcy as well as asset sales to raise money for the debt payments.

Harrisburg officials said Aug. 30 the city of 47,000 would default on a $3.29 million bond payment due Sept. 15 and not related to the incinerator project.

At a council meeting Thursday, councilwoman Patty Kim said she's forming an ad hoc committee to search for a lawyer that could advise the council on municipal bankruptcy.

City Controller Dan Miller says lenders for the project have been unwilling to negotiate interest and principle reductions. He says exploring bankruptcy could make lenders reconsider.

Harrisburg’s credit rating was cut to B2, five levels below investment grade, in February by Moody’s Investors Service, which cited concerns that the city’s strategy for managing the incinerator debt was “weak” and raised prospects for default. The firm no longer rates Harrisburg debt, according to spokesman John Cline.

Council President Gloria Martin-Roberts said she opposes a bankruptcy filing. “We have not yet settled anything else,” Martin-Roberts said. “If council and the Controller would allow the process to work we could have been that much farther along.”

Harrisburg’s tax revenue are coming in about $9 million below projections, a June 30 report from Thompson shows. The city’s $118 million budget for 2010 didn’t include any funds for $68 million in debt service the city has guaranteed on the incinerator bonds this year.

Harrisburg’s interim business administrator, Robert Kroboth, notified the trustee of its 1997 D and 1997 F zero- coupon bonds Aug. 30 that it won’t be able to make the Sept. 15 payments because “the city’s current financial situation precludes us from making any transfer to fund for these debt service payments at this time.”

Ambac Financial Group will cover Harrisburg’s Sept. 15 bond payments, Peter Poillon, managing director of investor relations for New York-based Ambac, said in an e-mail message.

“Ambac’s insurance will cover scheduled principal and interest should the issuer default on its obligation,” Poillon said.

Harrisburg is the second-largest general-obligation bond issuer, behind Jefferson County, Ala., to default on bond payments this year, according to Matt Fabian, managing director of Municipal Market Advisors in Westport, Conn. Jefferson County, which includes Birmingham and has more than 600,000 residents, has struggled to avoid the biggest U.S. municipal bankruptcy amid surging costs on $3 billion of sewer debt.

The default by Harrisburg may prompt other struggling communities to skip payments, and will affect pricing in the $2.8 trillion municipal bond market, said Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc., a New York-based brokerage.

“Once you get one entity doing it publicly and the world doesn’t end, which it won’t, gradually this is going to become less taboo,” he said.

Fabian said he doesn’t share that view.

“Harrisburg has been an example of exactly how not to behave,” he said in an e-mailed message. “It is hard to see other issuers willingly following Harrisburg’s example, although there is always the potential for more governments to make similar mistakes.”

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A member of Harrisburg's city council says Pennsylvania's capital needs to seriously consider filing for bankruptcy in the face of hefty debt payments. Harrisburg s finances have been plagued by the cost of guaranteeing $288 million in debtrelated to a waste-to-energy...
Harrisburg,Miss,Bond,Payment
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2010-21-03
Friday, 03 Sep 2010 02:21 PM
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