Amalgamated Backs Harrisburg Water System Refinancing
HARRISBURG, Pa. — Amalgamated Bank has completed a $22 million refinancing loan agreement with Capital Region Water, formerly known as the Harrisburg Authority, which delivers and treats the Pennsylvania capital city's drinking and waste water.
The six-year loan, which closed Thursday, marks the water system's first debt financing since it lost its investment-grade rating in January 2011. Moody's Investors Service later that year downgraded the authority to Ba3 with negative outlook from Ba1 and withdrew the rating on $70 million in Series 2008 water refunding bonds.
The Amalgamated deal features lower repayment amounts for the first two years, which will save the water system nearly $4 million during that time. The deal also served as a catalyst for structural improvements to all of the system's debt, which according to the bank may help it recapture an investment-grade rating.
According to an Amalgamated spokesman, the agreement will provide interim cash flow relief to the water system and reduce pressure on rate increases while saving it money.
"This transaction is in line with Amalgamated's goal of helping communities dig out of challenging financial situations while maintaining the essential public services that citizens depend upon," said Robert O'Brien, the bank's senior vice president for public finance.
Majority union-owned Amalgamated, which has increased its public finance presence in the past year, also loaned to Scranton when that northeast Pennsylvania city was a pariah in the capital markets, following the city's default of a $1 million parking authority bond payment. In August 2012, Amalgamated provided a five-month, $6.2 million loan to Scranton, which was facing a cash crunch and had cut workers' pay to minimum wage.
The loan helped the city make payroll and provide back pay to workers. According to Amalgamated, after Scranton repaid this loan, Amalgamated approved another $14 million in financing in 2013 to help the city bridge budget gaps as it sought long-term creditors. The city fully repaid the second loan as well, according to the bank.
In April 2013, Amalgamated approved a $2.9 million cash-flow loan for Allen Park, Mich., a Wayne County city near Detroit under emergency management after mounting long-term liabilities and budget gaps triggered declining credit ratings. Amalgamated said the city repaid the loan seven months ahead of time.
Allen Park made an ill-fated purchase of 104 acres to create a movie studio, Unity Studios & Village. The city issued $31 million of long-term GO bonds for the failed project.
The Harrisburg Authority, which operated the city's water and sewer systems, among other ventures, has been long linked to the debt crisis in Pennsylvania's capital. It changed its name in November.
The authority sold city-guaranteed debt for the incinerator, financing overruns for which largely accounted for the city's nearly $600 million in debt.
Moody's in 2011 cited "uncertainty surrounding the water system's insulation from any plans for fiscal recovery by the city. Exposure to these risks stems from the authority's relationship to the city as operator of the water system and its governance structure."
Harrisburg, placed into state receivership after a federal judge invalidated the City Council's bankruptcy filing, exited receivership last month after the Commonwealth Court of Pennsylvania approved the so-called Harrisburg Strong recovery plan, which hinged on the sale of the incinerator to the Lancaster County Solid Waste Management Authority and the long-term leasing of parking assets from the city and the Harrisburg Parking Authority to the Pennsylvania Economic Development Financing Authority.
Bond sales for both deals closed in December.