Harrisburg, Pa., plans to release in the next few weeks a request for qualifications for financial advisers to help it tackle $282 million of outstanding incinerator bonds it guarantees, as officials continue to work on a forbearance agreement for the debt.
The outside financial advisers would guide Harrisburg through potential debt restructuring plans and with the selling or leasing of municipal assets to help raise money to pay down a portion of the resource-recovery facility bonds. The city expects to release its RFQ in a couple of weeks, said Brian Hudson, executive director at the Pennsylvania Housing Finance Authority.
State officials asked Hudson to work with Harrisburg and the Harrisburg Authority, the issuer of the incinerator bonds, to develop a forbearance agreement that would give the city time to craft a repayment plan.
Hudson said the involved parties are set to deliver such an agreement to the City Council for its review within a few weeks.
Professional municipal bankruptcy experts and government officials Monday evening presented to the council the benefits and disadvantages of a bankruptcy filing and working within Pennsylvania’s municipal distress program, called Act 47.
While Mayor Linda Thompson and council president Gloria Martin-Roberts have said bankruptcy is not an option, Comptroller Dan Miller and council member Susan Brown-Wilson, who chairs the budget and finance committee, believe a bankruptcy filing might help the city address the $282 million of incinerator debt.
Hudson said that before Pennsylvania’s capital considers a bankruptcy filing or moving towards state oversight through Act 47, it must craft a forbearance agreement and see where things stand.
“The first priority is to start talking to the creditors right now and to see what can be worked out and what can be done,” Hudson said. “Get these forbearance agreements on board, bring on the financial advisers, and take a look at the whole big picture before we say any one of these particular options are best. We first have to have our creditors understand that we are willing to talk to them and try to work out some structure that makes sense, but at the same time have it be a permanent solution. And that’s what we’re looking for here.”
The authority sold resource recovery facility bonds to help finance upgrades and improvements to the incinerator facility. For more than a year, the plant has not generated sufficient revenue to pay principal and interest costs on the bonds, leaving the city, as first guarantor, responsible for paying investors.
Dauphin County, where Harrisburg is located, also guarantees much of the debt. Assured Guaranty Municipal Corp. insures $195.5 million.
Debt-service costs this year total $32.7 million, including $13 million to replenish the debt-service reserve fund for payments it made in 2009. In addition, there is a $35 million working capital loan that Bear, Sterns & Co. extended in 2007 that will be due to be repaid to JPMorgan in December. Officials anticipate refinancing that loan later this year.
By comparison, Harrisburg’s fiscal 2010 operating budget is $64.7 million. The city did not include funds to pay debt-service costs for the incinerator bonds in the fiscal 2010 budget. It will miss a May 1 payment to investors for $425,000 on Series 2002A bonds. Assured insures the Series 2002A bonds, which have no debt-service reserve fund.
