The Harrisburg Authority is unable to end three derivatives with Royal Bank of Canada and use those termination funds to help meet a Dec. 1 payment to bondholders of its incinerator debt, according to board member William Cluck.
The authority was planning on ending three swap agreements with RBC to generate a net payment that would go toward debt-service payments due Dec. 1. The derivatives are attached to the authority’s Series 2003D bonds.
Officials anticipated losing money on one swap termination as it was not in the authority’s favor, but gaining money on two derivatives that were a net positive.
“My understanding is that we have three swaps and one of them was under water,” Cluck said. “And RBC would not terminate the over-waters because of the one under water.”
It is unclear how much the authority will owe on Dec. 1 on its Series 2003D, E, and F bonds, along with swap payments that are due at that time. Harrisburg Authority executive director Michele Torres and board chairman Marc Kurowski did not respond to inquiries by press time Wednesday. Officials at RBC also were not immediately available for comment.
The incinerator has not generated sufficient revenue to meet debt-service costs on $282 million of outstanding bonds. The city of Harrisburg guarantees the debt but did not include incinerator debt-service payments in its current-year budget.
Dauphin County is co-guarantor on much of the incinerator debt and included its obligations in its current-year budget. Assured Guaranty Municipal Corp. insures the bonds.
Dauphin County guarantees the Series 2003D and E bonds. It does not guarantee the Series 2003F bonds.
The authority also has a $1.2 million debt-service payment due Nov. 1 on Series 2002A bonds. Those bonds do not carry Dauphin County’s pledge. Authority officials do not anticipate meeting that payment. Assured Guaranty also insures the Series 2002A bonds.
Along with missing bond payments, the authority has missed three quarterly payments of $637,500 to Covanta Energy Inc., operator of the incinerator facility, towards an outstanding construction loan. Covanta sued Harrisburg on Tuesday over the missed payments.
Chuck Ardo, spokesman for Mayor Linda Thompson, said the city is aiming to make good on its debts and is seeking state help through Pennsylvania’s distressed communities program, called Act 47.
“Our objective in filing for the state’s Act 47 program was to develop a plan that would allow us to meet all of the city’s financial obligations, and that includes the obligations to Covanta,” Ardo said.
Pennsylvania and Harrisburg officials are preparing for a public hearing on Oct. 20 regarding the city’s Act 47 application. If the state approves the request, the state will select a financial consultant to work with the city’s administration and its City Council to develop a fiscal recovery plan.
Assured Guaranty and TD Bank NA, trustee of the incinerator bonds, last month sued the city and the Harrisburg Authority. They are seeking a receiver for the incinerator debt and a court order that would force Harrisburg to meet its obligations.
