Harrisburg Default Will Be Covered by Ambac, Insurer Says

Ambac Financial Group will cover the $3.29 million bond payment that Pennsylvania’s capital city said it plans to skip on Sept. 15, according to a company spokesman.

Harrisburg’s interim business administrator, Robert Kroboth, notified the trustee of its 1997 D and 1997 F zero- coupon bonds Aug. 30 that it won’t be able to make the payments due when the bonds mature Sept. 15, according to city controller Dan Miller.

The city of 47,000 already this year has skipped $8 million in guarantees on debt issued by the Harrisburg Authority for a waste-to-energy incinerator project, including $2.2 million due today. Harrisburg’s revenue may be $9.8 million short of the $118 million projected to support its budget, according to a June 30 update from Mayor Linda Thompson.

“Ambac’s insurance will cover scheduled principal and interest should the issuer default on its obligation,” Peter Poillon, managing director of investor relations for New York- based Ambac, said in an e-mail message today.

The city has considered seeking bankruptcy protection to cope with the $68 million in incinerator-related debt service it is responsible for in 2010. The incinerator is operated by Covanta Holding Corp., based in Fairfield, New Jersey.

Harrisburg’s credit rating was cut to B2, five levels below investment grade, in February by Moody’s Investors Service, which cited concerns that the city’s strategy for managing the incinerator debt was “weak” and raised prospects for default.

To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at dmcnichol@bloomberg.net.

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