Proceeds from two bond deals designed to keep Harrisburg, Pa., out of bankruptcy fell "well within the range" of revenues projected over the summer, according to the city's state-appointed receiver, William Lynch.
"It reinforced our notion that our folks knew what they were doing," Lynch said late Monday after officially filing final papers related to the
The bond sales financed the Lancaster County Solid Waste Management Authority's $130 million purchase of the city incinerator and a $287 million issuance of revenue bonds by the Pennsylvania Economic Development Financing Authority to fund a 40-year lease of parking assets to Harrisburg First, a consortium of Guggenheim Securities, Piper Jaffray & Co., Standard Parking Corp. and Trimont Real Estate Advisors.
Bond financing overruns from incinerator project alone accounted for about $365 million of Harrisburg's debt, which exceeded $600 million overall.
Rises in interest rates, or what Lynch called a "hiccup in the bond market," forced the receivership team to rework the deal in August.
"We have driven a stake in the heart of the incinerator [debt] today and from today forward, the city will not be on the hook for any of that," Lynch told reporters outside the Commonwealth Court of Pennsylvania building in Harrisburg, where he hand-delivered two-and-a-half pages of wire-transfer documents.
Incinerator bond insurer Assured Guaranty Municipal Corp. of New York also insured nearly $190 million of the parking revenue bonds. In a statement on Tuesday, Assured said the closing marked "the achievement of a significant milestone in the city's return to fiscal health."
"AGM's participation in the city's recovery plan underscores its unique ability to assist issuers in accessing the capital markets to help them achieve their financial objectives," Assured's statement continued. "Throughout the City's fiscal difficulties, AGM has protected the interests of its insured Harrisburg resource recovery facility bond holders and, when there was a debt service shortfall, made full and timely payment of debt service under AGM's unconditional financial guaranty insurance policies."
As part of the incinerator transaction, the Lancaster authority, which has renamed the facility the Susquehanna Susquehanna Resource Management Complex, receives $16 million toward the purchase price: $8 million from the previous owner and $8 million from the Commonwealth of Pennsylvania. The purchase is supported by 20-year waste disposal contracts with the City of Harrisburg and Dauphin County, in addition to a 20-year power purchase agreement with the Commonwealth of Pennsylvania's Department of General Services.
"After three years of intense exploration, planning, negotiating, and preparations, I'm thrilled to say that we are the new owners of the oldest operating [waste-to-energy] facility in the United States," said authority chief executive James Warner.
Lynch and his inside team that included financial advisor Steven Goldfield of Public Resources Advisory Group and lead attorney Mark Kaufman of McKenna Long & Aldridge LLP worked on pre-closing documents throughout the weekend.
According to Lynch, getting to the market in December was important while interest rates remained low and before the city would encounter another cash-flow crunch. "I don't mean to make that more dramatic than it should be, but it's a fact. We will get through this first payroll in January and then we had to have an infusion of funds, and this will provide that."
Pennsylvania placed Harrisburg into receivership in November 2011 after federal bankruptcy Judge Mary France invalidated the City Council's Chapter 9 filing. Before filing for bankruptcy, the council three times rejected a state-sponsored financial recovery plan known commonly as Act 47. Lynch succeeded David Uncovic as receiver in May 2012.
Mark Schwartz, who represented the council from October 2011 until July 2012 and quit because the city never paid him, still thinks Harrisburg got shortchanged. "Harrisburg gets stripped of assets at a fire sale and the guys who made fortunes and indentured future generations to $300 million of bogus debt get off scot free," said Schwartz. "Welcome to Harrisburg. And to all a good night."
