The lease the Pennsylvania government signed for the Harrisburg Redevelopment Authority’s 12-story Verizon Tower may not provide enough revenue to prevent a default by the city on its GO debt-service guarantee for the project, and may force bond insurer Assured Guaranty Municipal Corp. to cover payments, Moody’s Investors Service said in a report Tuesday afternoon.

The lease was part of a larger recovery plan aimed at erasing more than $600 million of debt and keeping Pennsylvania’s 49,000-population capital out of bankruptcy.

“The state’s willingness to support this particular project is credit positive for the city, but indicates the city’s ongoing significant financial distress,” said Moody’s.

The Commonwealth Court of Pennsylvania approved the plan last September. The commonwealth itself, as part of the recovery plan, will lease more than the 200,000 square feet in the Verizon Tower, at the Strawberry Square complex downtown.

“The rental income from the new lease will only partially relieve Harrisburg of the annual debt-service payments on the bonds” when the lease with the building’s only tenant, Verizon Communications, expires in 2016, Moody’s analyst Dan Seymour and vice president and senior credit officer Geordie Thompson said in the report.

The Harrisburg Redevelopment Authority issued the bonds in 1998.

According to Moody’s, the Verizon Building lease does not generate enough revenue to preclude an eventual default on the bonds. The commonwealth will pay about $3.8 million annually under the lease. The building’s annual operating expenses are roughly $3 million, generating net revenues of only about $800,000, less than half the annual debt service on the bonds.

“Further, there is no clear revenue source to cover all of the $6 million bullet maturity program in 2033, although the debt service reserve fund, and, if exercised, an option payment by the state, could close the gap further.”

Moody’s said the city expects to restructure its reimbursement obligation with Assured Guaranty, but the state lease will delay payment shortfalls in city reimbursement payments and increase eventual recovery.

Postponement of the payments to Assured is part of the city’s overall recovery plan, dating to its 2009 default on an incinerator retrofit project that triggered state receivership two years later.

Assured Guaranty declined to comment late Wednesday.

Harrisburg also intends to pay general obligation bond insurer Ambac Assurance Corp. in full, also over an extended period. The city, current with its GO payments, has paid a combined $7.7 million in two GO payments this year. Its March payment was its first since September 2011.

The “Harrisburg Strong” recovery plan hinged on the sale of the trash burner to the Lancaster County Solid Waste Management Authority and a long-term lease of parking assets to the Pennsylvania Economic Development Financing Authority. Bond sales for both closed in late December.

Moody’s said the city would try to cut operating expenses to increase net revenues, though probably not to a level sufficient to meet the full annual debt service. A message seeking comment was left with Mayor Eric Papenfuse.

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