Harrisburg, Pa., will skip $5.3 million in general obligation bond payments due Thursday, its state-appointed receiver said.
It will mark the first time Pennsylvania’s capital city has missed a GO payment. The city already is mired in $310 million bond debt related to a retrofit of its trash burner, and has defaulted on about $65 million of incinerator-related bond payments.
Receiver David Unkovic said in a statement posted Friday on the Electronic Municipal Market Access system that the city would forgo a $2.73 million payment for its 1997 Series D bonds, and a further $2.53 million for its 1997 Series F.
“My first priority as receiver is to ensure that vital and necessary services such as police and fire are maintained within Harrisburg during the state of fiscal emergency,” Unkovic said in a statement. “The decision to withhold payment was made to maintain sufficient cash-flow to provide vital and necessary services.”
Messages seeking comment were left with Mayor Linda Thompson.
Unkovic last month released a financial recovery plan that called for valuing, then selling, the incinerator and revenue-producing parking garages.
Ambac Assurance Corp., a division of Ambac Financial Group Inc., insures Harrisburg’s GO debt.
The city anticipates that paying agent Bank of New York Mellon Trust Co. will ask the insurer to cover the debt-service payments, Unkovic said.
His call to close the asset sales by June 30 parallels the sunset of a restriction in state law that prohibits distressed cities of Harrisburg’s size from filing for bankruptcy, although Unkovic in interviews has denied any connection.
Harrisburg last September came perilously close to missing two GO payments totaling $3.4 million, but an 11th-hour, 10-year lease extension with the Harrisburg Parking Authority involving three downtown garages provided $7.4 million and enough upfront money for the city to make the payments.
The City Council last October filed a bankruptcy petition, but a federal judge nullified it a month later, citing the state restriction and Thompson’s objections to the Chapter 9 filing. That rejection is under appeal.
Alan Schankel, a managing director at Janney Capital Markets in Philadelphia, said last week’s move by the Stockton, Calif., City Council to delay bond payments and enter negotiations with creditors set some precedent.
“I didn’t expect this but it makes sense in the context of Stockton,” Schankel said. “I don’t know this, but I suspect Stockton’s pre-emptive move provided some comfort for Harrisburg. The receiver can put off the bond payments, then after he sells the assets, he can have the money to pay Ambac.”
Unkovic has also said he would negotiate givebacks from creditors after valuing the assets. “This gives him another arrow in his quiver,” said Schankel.
Harrisburg City Council member Brad Koplinski, who has favored a bankruptcy filing by the city, said Unkovic made the right move by paying city employees first.
“This situation shows what I and the majority of City Council has been saying for months — that Harrisburg is bankrupt. The creditors need to work with the receiver to give significant concessions, combined with responsible decisions regarding the city’s assets,” Koplinski said.
Attorney Mark Schwartz, who is representing the council in its bankruptcy filing, called Unkovic’s receivership “a very cruel charade, an incredible waste.”
He added: “They’ll be back in bankruptcy court, only Unkovic will make the situation worse.”
