A Harrisburg official who has been advocating a potential bankruptcy filing for Pennsylvania’s capital city released an alternative plan Wednesday that involves bondholders taking a potential cut on the $282 million of incinerator debt owed them.
The plan from Harrisburg Controller Dan Miller does not require the sale or lease of city assets. Miller is opposed to the city leasing or selling assets, in particular a parking garage that generates $4.5 million annually.
Getting bondholders to agree to a cut may be difficult, but they could face a similar scenario if the city were to file for bankruptcy.
“I do think bankruptcy is a true option for Harrisburg,” Miller said. “And I think if we got into bankruptcy, I’m not sure how much [bondholders would] appreciate that.”
Conversely, Mayor Linda Thompson and City Council President Gloria Martin-Roberts have said other options, such as leasing assets, reducing city spending, and negotiating with stakeholders, are better alternatives than a bankruptcy filing. Thompson and her staff are pursuing leasing assets to help generate the additional revenue needed to meet the city’s incinerator debt obligations.
The city guarantees $282 million of Harrisburg Authority incinerator debt, but did not budget incinerator debt-service costs in its operating budget for the fiscal year beginning Jan. 1. The authority does not have sufficient revenue to meet principal and interest costs on the bonds.
Assured Guaranty Municipal Corp., the insurer of most of the debt, and co-guarantor Dauphin County, where Harrisburg is located, have been making payments to bondholders. The next debt-service payment is due Sept. 1.
Repayment of the incinerator bonds and swap agreements attached to the debt totals approximately $20 million annually.
Miller reviewed city and authority budgets and bond documents in crafting the broad outlines of the long-term plan he discussed Wednesday. It gives complete oversight of the incinerator facility to Dauphin County by allowing it to replace the authority as the plant’s manager. Covanta Energy Inc. operates the facility.
He would have the county meet its share of the debt-service burden — roughly half of the $20 million due each year — partly by raising incinerator fees. In addition, the controller proposes working with bond investors to decrease the principal and-or interest payments on the $282 million of debt, which would also lessen Dauphin County’s obligation.
“Hopefully we can get a lot of it reduced by some concessions in interest and/or principal from some of the bondholders,” Miller said.
Miller’s plan calls for the city to dedicate the $4.5 million of revenue it receives each year from the Harrisburg Parking Authority to debt service repayment. Another $5.5 million of net operating income the incinerator currently produces would go toward bond repayment.
Miller said the proposal is a long-term outlook that does not incorporate certain debt-service payments for the remainder of 2010. Along with debt-service costs, the city must repay a $35 million loan that comes due in December. Officials refer to the $35 million as a “working capital loan” that Bear, Stearns & Co. extended in 2007, which is due to be repaid to JPMorgan.
A banking source said Bear Stearns privately placed the $35 million as securities with investors.
Meanwhile, the city has asked six selected financial advisory firms, from 16 respondents, to present proposals to address the city’s incinerator debt, according to Harrisburg finance director Robert Kroboth. Those proposals are due July 23 and the city plans to interview three or four potential advisers.
Proposals are due today for professional appraisal services. The selected firm will help the city place values on its assets.
Since April, the city has been in discussions with Assured Guaranty and other stakeholders for a potential forbearance agreement on the incinerator debt.
“The city continues to negotiate the key terms of that agreement with Assured Guaranty and with Covanta Energy,” Kroboth said. “We’ve been going back and forth and the term sheet continues to be revised. I believe we’re close, but there’s no agreement that has been signed, entered into, or any of that yet.”
The finance director said that he has not been able to review Miller’s plan, but noted that the controller is now considering other options in addition to a potential bankruptcy filing.