Harrisburg Incinerator, Source of Fiscal Woes, May Save Its City
Harrisburg, Pennsylvania
Bradley C. Bower/Bloomberg
The state capital complex stands in downtown Harrisburg, Pennsylvania in this photo taken on Feb. 12, 2010.
The state capital complex stands in downtown Harrisburg, Pennsylvania in this photo taken on Feb. 12, 2010. Photographer: Bradley C. Bower/Bloomberg
Harrisburg’s incinerator, a $310 million debt burden that’s driven the Pennsylvania capital to weigh bankruptcy, may become the city’s salvation.
The site has drawn two offers -- of $124 million and $140 million -- that the city could use to pay some of the debt from a 2003 overhaul and expansion it guaranteed and other expenses.
The trash-to-energy incinerator, now running near capacity, still can’t cover the project’s costs. That prompted some officials in the city, which faces obligations five times larger than annual general revenue, to consider bankruptcy. Cash from the two offers -- one to buy and one to lease -- may mark the beginning of a way out.
“It’s a good start,” said Alan Schankel, director of fixed-income research at Janney Montgomery Scott LLC, an investment adviser in Philadelphia. “You can see the outlines of a solution emerging.”
Harrisburg racked up debt after the plant, built in 1972, violated environmental regulations in the 1980s and 1990s. In 2003, city officials decided on a $125 million “retrofit,” calculating the power generated by a bigger site would pay off the debt incurred.
It hasn’t worked out that way. The city’s tab for $282 million of loans and bonds it guaranteed for the plant’s owner, the Harrisburg Authority; restructuring costs; and money owed to Dauphin County and insurer Assured Guaranty Municipal Corp. for covering missed payments has grown to $310 million, according to consultants for the state’s Act 47 program governing distressed municipalities.
Relief Ahead?
A $124 million purchase offer from the Lancaster County Solid Waste Management Authority may bring some relief. The bid, which started at $45 million in March, was recently raised with conditions: the city and county must guarantee the amount of waste available to generate power and the electricity rates it can charge.
Acquiring the Harrisburg facility would be cheaper and less risky than expanding Lancaster’s own site, 18 miles (29 kilometers) away, James Warner, the waste authority’s chief executive officer, said in a telephone interview yesterday.
“Any arrangement we enter, we would have to get it free and clear,” he said. “We’re not paying any existing debt. We want to be the operator of the plant. We don’t plan to get mired in the squabbles that would have preceded the ownership of the facility.”
The $140 million 99-year lease proposal came May 5 from New York-based LambdaStar Infrastructure Partners LP and EQT Infrastructure Ltd., part of a Stockholm-based private equity fund.
Parking Stipulation
The offer stipulates that the city must agree to the venture’s previous offer to lease its parking garages and lots, for either 75 years for $215 million or 50 years for $195 million. In addition, the city and county must create a joint authority to own the plant.
“It’s part of a comprehensive solution to the city’s fiscal crisis,” Charlie Gerow, a spokesman for Jacob Frydman, managing partner at LambdaStar, said in a telephone interview May 9. Johan Hahnel, an EQT spokesman, didn’t return an e-mail seeking comment.
“It’s good for Harrisburg to have these offers because no one is coming to the rescue,” said Howard Cure, director of municipal research for Evercore Wealth Management LLC in New York. He said the state is unlikely to offer assistance outside of the Act 47 program.
Asset Sales Recommended
The city of 49,500 people 106 miles west of Philadelphia should negotiate with creditors and consider selling assets and increasing fees before entering bankruptcy, according to a report released last month by the New York law firm Cravath, Swaine & Moore LLP.
Investors have become more optimistic that the city will solve its fiscal problems. A zero-coupon Harrisburg general- obligation bond maturing in September 2021 traded May 6 at an average price of 39.6 cents on the dollar, according to data compiled by Bloomberg. That’s up from 30 cents three months earlier.
The two bids for the incinerator prompted officials of the Harrisburg Authority to seek more suitors, said Marc Kurowski, its chairman.
He said no action on the offers is expected before the state’s consultants announce their recovery plan for the city. That’s scheduled for early June, according to Bob O’Donnell, a spokesman for the team.
“The facility is running well,” Kurowski said in a phone interview May 9. “The debt is its own issue.”
Details Awaited
Robert Philbin, a spokesman for Mayor Linda Thompson, said she declined to comment. A spokeswoman for Assured Guaranty, Ashweeta Durani, said yesterday in an e-mail that company officials are “aware of the proposals and look forward to hearing more details.”
The plant is running at 92 percent capacity, compared with 40 percent at the beginning of 2007, said Jim Klecko, a vice president at Covanta Energy Corp.
“We think it’s been a success story,” Klecko said. “It becomes extremely evident when you see the proposals on the table.”
To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net.
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.
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