Scranton, Pa., and Amalgamated Bank have completed a $13 million tax anticipation note to provide cash-flow financing to the struggling city looking to enhance its reputation in the capital markets.
The 12-month loan, effective Jan. 2, will help the city continue to fund municipal services, including salary and wages for the police and fire departments, without interruption.
The five-member City Council approved the transaction last month.
Once the TAN goes through, Scranton, the 77,000-population seat of Lackawanna County, will also be able to make the balance of its annually required pension payment. The city missed the Dec. 31 deadline for full payment, but was able to pay $5.3 million of its $9.1 million due because PNC Bank let the city temporarily overdraw its general-fund account. That reduced the city's penalty - mandated by state law - to about $295,000 from $340,000.
"It's safe to say, we felt the repayment source was fairly robust," said Robert O'Brien, Amalgamated senior vice president for public finance. "That it was a short-term loan gave us a lot of comfort. We see an improving situation in Scranton, albeit with a certain amount of work still to do."
Scranton has been in the state's Act 47 program for distressed communities since 1992.
O'Brien praised the work of business administrator David Bulzoni, a former government banker who arrived early last year when Mayor Bill Courtright took office.
"He's a top-notch guy," O'Brien said of Bulzoni.
The TAN marks Amalgamated's third with Scranton, beginning in 2012 when the city became a pariah in the capital markets after the city defaulted on a $1 million parking authority bond payment. For two weeks that summer, Scranton, lacking the cash to make its full payroll, paid its employees the federal minimum wage. Amalgamated and Scranton worked out another TAN the following year.
Amalgamated, founded in 1923 by the Amalgamated Clothing Workers of America as New York City's first labor bank, has built out its public finance unit over 18 months with an emphasis on distressed issuers.
"It's an area that has fit nicely with the bank's history," said O'Brien. "In the public-sector space, there are not a lot of banks willing to get their arms around these kinds of situations."
In April, Amalgamated completed a $22 million deal with Capital Region Water of Harrisburg, Pa. - the former Harrisburg Authority. That transaction, which refinanced water revenue bonds, marked the system's first market access since losing its investment-grade rating in 2011.
Amalgamated was also a co-lender for the Commonwealth of Puerto Rico and worked out 2013 cash-flow financing with Allen Park, Mich., which was under a state-appointed emergency manager.