The Harrisburg Authority will pay its entire $2.2 million, Sept. 1 payment to holders of incinerator bonds with debt reserve funds, as an incomplete board threatens the Pennsylvania agency’s ability to move ahead with needed business actions.
Board member Bill Cluck said the authority has sufficient reserve funds to pay investors the principal and interest costs due Sept. 1 on Series 1998A bonds and Series 2003A, B, and C bonds. Before the Sept. 1 payment, the Series 1998A and Series 2003 bonds each have $3.6 million of reserve funds, according to Cluck, one of two active members of the five-member board.
The authority has $282 million of outstanding incinerator debt, including the debt with payments due Sept. 1. The city of Harrisburg guarantees the bonds, but did not include incinerator debt-service costs in its operating budget for the fiscal year beginning Jan. 1.
The authority does not have sufficient revenue to meet principal and interest payments on the bonds and has tapped into any available reserve funds to meet those obligations. As a result, it has turned to co-gaurantor Dauphin County and Assured Guaranty Municipal Corp., insurer of much of the debt.
Along with the challenge of paying its debt, the authority’s five-member board is in limbo and does not have a quorum to be able to vote. Cluck said he and fellow board member Marc Kurowski will step down if the Harrisburg City Council does not approve at least one additional member by Aug. 23, when the authority’s professional liability insurance will expire. Cluck said he cannot stay with the agency without such insurance.
“The professional liability insurance expires on Aug. 23 and the carrier will not renew,” Cluck said. “And Marc and I plan to resign if it’s not resolved by then.”
The City Council Monday evening is set to vote on two mayoral board appointees. The council has rejected appointees in the past as there is tension between the council and Harrisburg Mayor Linda Thompson.
In June, the Pennsylvania Supreme Court determined it is the mayor that nominates board members to the Harrisburg Authority and not the City Council. That decision wiped out the board and required Thompson to nominate five members. Cluck and Kurowski were appointed or reappointed following that decision.
“If council happens not to approve those two people, I think the word is [expletive],” Cluck said.
Thompson spokesman Chuck Ardo said the mayor’s office is hoping the council’s actions Monday night will allow for a quorum.
“All I can tell you is that the mayor has urged council to act quickly on the nominations she sent over and hopefully the council will do that and avoid any repercussions from the failure to have a quorum,” Ardo said.
In addition to the professional liability insurance, the authority’s infrastructure insurance will expire in September. Government officials and AGM have been working for months on a forbearance term sheet. In addition, the city plans to select a financial adviser “very soon” that will help Harrisburg map out a debt refinancing plan, according to Ardo.
“They are actively in the final stages of picking an adviser and I think that the announcement will come sooner rather than later,” Ardo said.
Once the forbearance term sheet and the refinancing strategy are ready, the Harrisburg Authority’s board would weigh in on those plans. But without a quorum of the board, those plans, which are vital to allow the agency to address its debt challenges, would be stalled.
“I would assume any kind of refinancing requires an action of the board,” Cluck said. “And if you don’t have a board to take action, you can’t do refinancing. Or if a forbearance agreement requires action of the board, and there’s no board to take action, then there’s no forbearance agreement. I would say it’s pretty significant.”
Dauphin County, where Harrisburg is located, guarantees much of the $282 million of incinerator debt and has budgeted for its liabilities. The county does not guarantee the Series 1998A bonds and the Series 2003 bonds.
Assured Guaranty insures much of the debt. It has paid bondholders principal and interest payments on debt that is not guaranteed by Dauphin County and does not have sufficient debt-service reserve funds.
Future payments to bondholders include $1.2 million due Nov. 1 on Series 2002A bonds that do not carry the county’s guarantee. In addition, the Series 2002A bonds do not have a reserve fund, Cluck said.
There is also a $6.2 million payment due Dec. 1 on Series 2003D, E, and F bonds. Dauphin County guarantees the 2003D and E bonds, but not the 2003F bonds. In addition, Cluck said there is only $50,000 in the Series 2003F bond reserve fund, while the Dec. 1 payment is $1.7 million.
Along with payments to bondholders, a $35 million “working capital loan” will come due Dec. 15. Bear, Stearns & Co. extended the loan in 2007 and is due to be repaid to JPMorgan.
A banking source said Bear Stearns privately placed the $35 million as securities with investors.
“Obviously they need to find a financial adviser and things need to move very quickly,” Cluck said. “And I don’t know what that’s going to be and I don’t know what role the authority is going to play or not play and everything is in a flux.”
In other news, a civil-action judge recently ruled against Dauphin County in its suit to have the authority and the city reimburse the county for payments that it has made on the incinerator debt.
“The judge ruled that this is not a proper case to be brought ... because there’s adequate remedy at law as a breach of contract,” Cluck said. The county could refile.
