Scranton, Pa., in possession of its first bond rating since 2011 intends to sell $40 million of redevelopment authority lease revenue bonds next week to fund a back-pay settlement with police and fire unions.
The negotiated sale will consist of roughly $32.4 million of Series 2016A tax-exempt bonds — term bonds of $23.8 million and $8.6 million with maturities of 2028 and 2021, respectively — and $7.8 million of Series 2016AA taxable bonds. Some of the proceeds will refund the authority's outstanding Series 2008 guaranteed variable rate demand lease revenue bonds.
The bonds are rated junk-level BB by S&P Global Ratings. S&P five years ago withdrew the city's last bond rating, BB-minus, at Scranton's request.
Citi is the lead manager. Public Financial Management Inc. is the financial advisor. Stevens & Lee PC is bond counsel for the sale.
Mayor Bill Courtright in March announced the settlement, which includes pay Scranton owes retirees under a 2011 state Supreme Court ruling that said the city could not cut benefits based on its status as a distressed city. The $31.5 million due includes active interest and a combined $1.6 million deposit into the pension funds, split equally.
A nationally recognized third-party administrator will manage the funds and a specialist physician will make final determinations on disability pensions.
Scranton, the 77,000-population seat of Lackawanna County in northeast Pennsylvania, must finance the transaction by the end of the month.
S&P, which assigned a stable outlook while rating Scranton two levels below investment grade, scored previously unrated Scranton weak in its economy, management, budgetary performance, budgetary flexibility, liquidity and debt and contingent liability.
"While the city's liquidity and financial profile may improve through asset monetization and implementation of its recovery plan, the substantial fixed costs associated with its pension and debt service obligations may prolong the city's fiscal distress," S&P said late Monday.
S&P, the only agency to rate Scranton for this sale, noted that the city's financial performance stands to improve under the administration of Courtright, a former city tax collector who took office in 2014. It said audited results do not reflect such recent improvements as better budgetary practices and more reasonable revenue and expense assumptions.
"The content of the report is generally what the city and its financial advisor, Public Financial Management, expected," city business Administrator David Bulzoni said via email.
The capital markets had shut out Scranton since its City Council in June 2012 defaulted on a $1 million parking authority bond payment, with the intention of dismantling the authority. The city has since repaid the debt.
Other fiscal initiatives have included increasing real estate and local service taxes, establishing market access at reasonable rates for short-term borrowings and establishing a sole-source paying agent for all city debts.
Two weeks ago, Scranton announced that a public-private partnership under which 501(c)(3) nonprofit National Development Council will manage the distressed city's parking system. The move, said Courtright, would end the receivership of the parking authority, eliminate $53 million of authority debt and provide $40 million in city garage renovations.
Also in March, Scranton agreed to sell its sewer authority to Pennsylvania American Water Co. The sale is expected to generate up to $120 million in net proceeds, which it will split 80%-20% with neighboring borough Dunmore. The deal needs Pennsylvania Utilities Commission approval.
The transaction could enable Scranton to contribute $65 million to its three pension plans — fire, police and non-unformed, and raise its composite funding level from roughly 24% to as high as 55%.
