To no surprise in the bond markets, teetering Harrisburg, Pa., will default on $5.2 million of payments on general obligation bonds and notes due March 15, state-appointed receiver William Lynch said late Monday.
This will mark Harrisburg's third-straight missed GO bond payment. The 49,000-population Pennsylvania capital also missed similar payments due March 15 and Sept. 15 last year.
Affected are $2.7 million on the city's Series 1997D general obligation refunding bonds, and $2.5 million on Series F general Obligation refunding notes. Ambac Assurance Corp. insures the payment of principal and interest.
“We continue to honor all general account claims,” Ambac’s managing director for investor relations Michael Fitzgerald said in a satement. “To the extent Harrisburg defaults on a bond that we insure, and we receive a valid claim, we expect to honor and pay it accordingly.”
Lynch, who succeeded David Unkovic as state-appointed receiver last May, cited the need for cash flow to provide "vital and necessary" services. The city is $340 million in the hole, mostly from overruns to bond financing related to an incinerator retrofit project.
Other recent problems confronting the city include a crime wave and sinkholes, including one on Cameron Street, a major thoroughfare near the capitol building.
"When the sinkhole work occurred, the contractor said, 'Hey, I'm a little concerned here. Am I going to be paid?' That goes under essential services," Lynch spokesman Cory Angell said.
"They've got a lot of challenges, and we know other cities are struggling as well," said John Hallacy, the head of municipal research for Bank of America Merrill Lynch. "I know the Commonwealth of Pennsylvania is trying to do its best to prevent a [bankruptcy] filing."
Alan Schankel, a managing director at Janney Capital Markets in Philadelphia, said Harrisburg's latest default is not big news.
"There will be no hiccups in the bond market. You and I and most everybody else expected they would miss this payment," he said.