The chief executive of the waste management authority in line to buy the Harrisburg, Pa., incinerator that has been ground zero in that city’s debt crisis took exception to a Moody’s Investors Service report that said the acquisition could result in a “multiple-notch rating change.”
Moody’s late Friday affirmed its A3 rating and stable outlook to the Lancaster County Solid Waste Management Authority’s Series 2006 resource recovery system revenue bonds. Lancaster County abuts Harrisburg’s county, Dauphin. Its own plant sits 18 miles from Harrisburg’s.
While saying its rating factored in the knowledge of the transaction, the rating agency added: “At this time, however, specific details are extremely limited. Given the history of this particular asset, the undertaking by the authority may be credit negative in our view. Depending upon the structure of the transaction and the associated debt financing, it may have significant credit implications and could result in a multiple-notch rating change.”
Moody’s overstepped, said James Warner, CEO of the Lancaster authority.
“When they say multiple-notch rating change, we can only assume a negative one,” he said in an interview Tuesday afternoon. “This was really an ordinary surveillance update, so we were surprised by this. They wanted to know about this deal. We discussed it but really we didn’t think it should factor into their upgrade.”
Bond financing overruns to the incinerator retrofit project have saddled Harrisburg, Pennsylvania’s 49,000-population capital, with roughly $340 million in debt that it cannot pay. The Securities and Exchange Commission and the Internal Revenue Service have received requests to investigate the bond deals. They were also subject of state Senate hearings late last year.
William Lynch, the city’s state-appointed receiver, is selling the incinerator, water and wastewater systems and parking garages. Last June Lynch’s office selected Lancaster to negotiate exclusively for the incinerator.
“We’d like to be in there by the end of the second quarter, for sure,” said Warner. The parties are otherwise mum about details.
Standard & Poor’s rates the Lancaster bonds AA-minus, also stable, having last affirmed that rating in November 2009. “Moody’s has us three notches below S&P. That’s a big gap,” Warner said. “There is no doubt the bond industry has this bias against anything regarding the Harrisburg plant. But that facility is running quite well, thanks to the expertise of Covanta Energy.” Covanta finished the project after taking over its operations in 2007.
Warner said he hasn’t spoken with Standard & Poor’s officials lately.
“They’re aware of what we’re doing, but we haven’t done any surveillance updates with them,” he said. “Given the flavor Moody’s put in on it, I think we’ll wait until this thing is finished, then take it into S&P.”
Moody’s did praise the Lancaster authority for its success in a competitive environment, stable finances, high liquidity levels and management effectiveness. “Look, we know how to run a plant. We’ve done it for more than 20 years,” Warner said.
In 2011, before Pennsylvania put Harrisburg into receivership, Lancaster had offered $124 million, without debt assumption for the Harrisburg incinerator.