July 9 (Bloomberg) -- Billy the Kid, the 19th century American West outlaw, scrawled “Time is short” on a sheet of paper -- an 1881 letter to a territorial governor that Guernsey’s auctioneer Joanne Grant discovered sifting through artifacts piled in a warehouse in cash-strapped Harrisburg, Pennsylvania.
“We’re still discovering important things,” Grant said in an interview.
On July 11, potential bidders will tour the building to get a look at wagons, wooden Indians and thousands of other items that former Mayor Stephen Reed amassed in his failed attempt to build a municipal Wild West museum. Four days later, the New York-based auction house will sell the collection stored at the warehouse, located across the street from a trash-to-energy plant that has pushed the city into state receivership and to the brink of bankruptcy.
Reed’s collection for the museum that was never built was valued at $8.3 million when it was pledged as collateral for a 2006 loan by Harrisburg’s Metro Bank to the state’s capital, according to Bob Philbin, the municipality’s chief operating officer. The city skipped a payment on the credit in May after defaulting twice on general-obligation debt.
“Turning these artifacts into cash is something the city needs right now,” said William B. Lynch, the state-appointed receiver for Harrisburg.
Reed, whose home phone number is unlisted, didn’t return an e-mail seeking comment.
After unloading the Western items, Harrisburg may also dispose of the incinerator and lease its parking system to ease a $350 million debt burden almost seven times its general-fund budget. It will join other communities from Hercules, California, to Detroit, itself flirting with bankruptcy, in shedding assets to raise cash.
In the U.S. auto-industry capital, Emergency Manager Kevyn Orr has said his representatives have met with officials of the Detroit Institute of Arts, which owns works by Vincent Van Gogh and Diego Rivera. The museum “contends that the collection is held by a public trust and cannot be used for any purpose other than exhibition,” the emergency manager said in a June 14 proposal to creditors. Yet “further dialogue is anticipated,” he said.
While Detroit tests creditors, other distressed municipalities are moving to raise funds even as localities are defaulting at the slowest pace since at least 2009 and borrowing costs hover near the lowest in decades.
In Harrisburg, the memorabilia sale may benefit from the Old West genre holding up well, compared with other collectible categories, since the recession that ended in 2009, said Tom Slater, director of Americana auctions at Dallas-based Heritage Auctions.
Pieces that are closely associated with key Western figures fetch high prices, such as $2.3 million that energy billionaire William Koch paid two years ago for the only known photograph of Billy the Kid, he said.
The gunman, born about 1859 to an Irish immigrant mother, lived in New York’s slums before heading west in the next decade, according to a biography on the Public Broadcasting Service’s website. He was shot to death in New Mexico in 1881 after escaping from jail.
Billy the Kid’s March 21, 1881, letter to Lew Wallace, dated three months before his death, may bring “six-figure” bids if it’s authentic, said Slater, who said he knows of no other major Western collection in a municipal institution in the U.S. Northeast.
While Arlan Ettinger, Guernsey’s chief executive officer, declined to estimate how much the city might reap in the sale, “at the moment, the forecast is good,” he said in an interview at the warehouse, where he and his employees were hanging paintings and labeling revolvers.
Reed, a Democrat who served as mayor for 28 years until 2010, spent more than $8 million in public funds to accumulate the Western artifacts. The purchases ended up in disarray in storage spaces around the city of about 50,000.
“There was no rhyme or reason that we could decipher in terms of why things were thrown into boxes, why boxes were stacked on top of other boxes, and all put into spaces that you couldn’t walk,” Ettinger said. “There was just no room.”
Most, such as Doc Holliday’s dentist’s chair, come from the American West or are modern goods with a Western look, such as saddles, he said. Reed, 63, also bought African masks and relics from other eras, such as World War II General George Patton’s U.S. Army shirt, complete with stars on the collar.
Besides the jumble, Reed left residents a crippling legacy of the incinerator, which was overhauled and expanded yet failed to generate enough revenue to pay off its debt. Harrisburg first defaulted on the securities in 2009. Dauphin County, of which Harrisburg is the seat, and bond insurer Assured Guaranty Municipal Corp., a unit of Hamilton, Bermuda-based Assured Guaranty Ltd., have covered the payments since.
An incinerator bond due in 2034 traded July 3 at an average yield of 5.05 percent, 1.22 percentage points over benchmark debt, according to data compiled by Bloomberg. The penalty has narrowed since Jan. 2, when the security traded at an average yield of 5.16 percent for a spread of 2.66 percentage points.
Lynch, who was appointed receiver in May 2012, plans to release a fiscal blueprint that will detail how much the city can raise from a sale of the incinerator and lease of its parking system to repay creditors. A state judge must approve the plan, as well as how the proceeds of the auction should be spent.
The former mayor’s Western collection was pledged as collateral for the $7.2 million loan in 2006 from Metro Bancorp Inc.’s Metro Bank unit that was used to help pay off an earlier note issuance. Harrisburg skipped a $872,502 payment on the loan.
Natalie Neyer, a spokeswoman for the bank, declined to comment.
Lynch, meanwhile, says he isn’t depending on the Wild West sale as he negotiates with creditors.
“It’s worth whatever someone will pay you for it,” he said.
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