HARRISBURG, Pa. — Amalgamated Bank sees opportunity in distress.
"We're not afraid of headline risk and complicated transactions," Robert O'Brien, senior vice president and head of the bank's two-year-old public finance business, said in an interview.
"We're trying to build out in that space. We have a lot of labor-friendly customers, so building a public-finance platform is natural for us," said O'Brien, a 16-year veteran who has worked at German bank Landesbank Baden-W rttemberg, BluePoint Re and Fitch Ratings.
The union-owned bank has backstopped deals in struggling Harrisburg and Scranton, Pa., and Allen Park, Mich. Its most recent transaction was a $22 million refinancing loan agreement with Capital Region Water — the former Harrisburg Authority — in the water system's first debt financing since it lost its investment-grade rating in January 2011.
While at higher rates than the mainstream market, these kinds of bank financings — akin to "second chance" auto loans for struggling individuals — offer the cities the chance to re-establish themselves.
"Banks are nibbling at us again," said Harrisburg state-appointed receiver William Lynch. "Contrast with 18 months ago when banks wouldn't touch us, not even with the mayor making personal phone calls."
The Harrisburg Authority has been long synonymous with the incinerator financing debt that nearly drove the 49,000-population capital to bankruptcy, until a receivership team crafted a financial recovery plan last year.
The Amalgamated Clothing Workers of America founded the bank in 1923. Successor organization Workers United now owns it.
"These kind of transactions dovetail with the bank's history," O'Brien said.
According to Steven Goldfield, the lead financial advisor to Lynch's receivership team, Harrisburg is ahead of schedule in its efforts to regain favor in the capital markets.
"Paying Metro Bank back ahead of schedule on their loan to the city secured by the wild west artifacts, obtaining a [tax anticipation note, also from Metro], Amalgamated on the water side, and restarting payment of its general obligation bonds are all steps in the right direction as the city rehabilitates its relationships with the financial community," said Goldfield, an attorney with Public Resources Advisory Group in Media, Pa.
The six-year loan with Capital Region Water features lower repayment amounts for the first two years, which Amalgamated said will save the water system nearly $4 million. According to O'Brien, the transaction also served as a catalyst for structural improvements to all of the system's debt, which may help it recapture an investment-grade rating.
"We saw a situation where we could try to help by providing some breathing space," O'Brien said.
Amalgamated waded into public finance two years ago, when it provided a $6.2 million loan to Scranton. The northeast Pennsylvania city was a capital markets pariah at the time, after defaulting on a $1 million parking authority bond payment. The city for two midsummer weeks in 2012 paid its employees the federal minimum wage.
After Scranton repaid this loan, the bank approved another $14 million in financing in 2013 to help bridge budget gaps. The city fully repaid the second loan as well, according to the bank.
"I give our bank a lot of credit. We had great support from our executive management team," O'Brien said. "Scurrying to complete these kinds of transactions can be choppy at times."
In April 2013, Amalgamated approved a $2.9 million cash-flow loan for Allen Park, Mich., just outside Detroit. Allen Park is under emergency management after mounting long-term liabilities and budget gaps triggered declining credit ratings. Amalgamated said the city repaid its loan seven months ahead of time.
Allen Park issued $31 million of long-term general obligation bonds for a failed project, the purchase of 104 acres to create the Unity Studios & Village movie studio.