SEC Examining Harrisburg Disclosures to Investors as City Coped With Debt
The Securities and Exchange Commission asked Harrisburg, Pennsylvania, for information on its disclosures to investors after the city’s debts threatened to push it into bankruptcy.
The SEC asked the state capital city in November for the information about its periodic reports to investors, said Chuck Ardo, a spokesman for Mayor Linda Thompson. He said the city is complying.
“I think it’s got to do with the city’s overall financial situation,” he said in an interview today.
Harrisburg in December was declared “financially distressed” under Pennsylvania’s Act 47 oversight program for cash-strapped cities. Harrisburg sought state assistance in the face of $282 million in debt it guaranteed for an incinerator operated by the independent Harrisburg Authority. Its brush with bankruptcy stoked speculation among investors about potential defaults by U.S. cities.
John Nester, a spokesman for the SEC in Washington, declined to comment. The SEC review was reported today by Dow Jones Newswires.
The SEC is moving more aggressively to enforce rules in the $2.9 trillion municipal securities market, where states, cities and local authorities raise money. Last year, the agency created a division to focus on municipal securities and pension funds and approved new rules aimed at forcing quicker disclosure by borrowers of events that could affect the value of their bonds.
New Jersey Settlement
In August, New Jersey agreed to settle claims it didn’t tell investors that it failed to put enough cash into its two biggest pension plans when it sold $26 billion of bonds from 2001 to 2007. The SEC is also investigating statements by Illinois about potential savings from changes to its pension system, which has assets covering less than half of its promised benefits.
The SEC mandates disclosure indirectly, through requirements placed on securities dealers that underwrite bonds. It has the power to pursue public officials who file fraudulent or misleading documents to investors. Four former San Diego officials in October agreed to pay $80,000 to settle an SEC fraud suit that accused them of failing to disclose the size of pension-fund shortfalls when the city sold bonds.
Debt Guarantees
Harrisburg’s financial struggles were a result of debt it guaranteed for a trash-to-energy incinerator that failed to meet revenue projections. The guarantees forced the city into the Act 47 program, an alternative to bankruptcy in which a state- appointed coordinator develops a recovery plan.
The decision to enter the program also affected other securities connected to the city. A month after the move, Moody’s Investors Service lowered the ratings on a combined $86 million of debt sold by the Harrisburg Parking Authority and the Harrisburg Authority.
A parking authority bond maturing in 2022 sold for an average yield of 6.62 percent today, up from 5.1 percent in late August, according to data compiled by Bloomberg. Yields rise when prices fall.
To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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