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Once-Broke Pennsylvania Capital Prepares Muni Market Return

Jan. 29 (Bloomberg) -- Harrisburg, the Pennsylvania capital, whose debt guarantees on an incinerator project drove it to insolvency, is preparing to borrow in the $3.7 trillion municipal market for the first time since 2010.

City council plans to discuss the financing tomorrow and may vote on Feb. 11 to issue $4 million in tax- and revenue-anticipation notes as soon as the following day, Steven Goldfield, a consultant for the city’s state-appointed fiscal overseer, said by e-mail.

The return to credit markets would mark the latest step in the recovery of the municipality, which tried unsuccessfully to file for bankruptcy and remains under state receivership. The city of 50,000 people faces a penalty over top-rated borrowings. The loan would carry an interest rate of 2.5 percent and mature on June 30, Goldfield said. That’s about the level at which top-rated issuers can borrow for almost a decade, data compiled by Bloomberg show.

The borrowing plan is “a good indication that the city is beginning to rehabilitate its creditworthiness with financial institutions,” said Joseph Boyle, a consultant for William B. Lynch, the state-named receiver.

While Detroit filed a record bankruptcy in July with about $18 billion of liabilities, Harrisburg ended up striking a deal that Lynch said would give the city a fresh start. Harrisburg last month cleared its debt burden of $362.5 million, about seven times its general-fund budget, through the sale and lease of assets, and concessions from creditors.

Lingering Penalty

Natalie Neyer, a spokeswoman for Metro Bank, the buyer of the notes and a unit of Harrisburg-based Metro Bancorp Inc., declined to comment.

The proposed interest rate on the notes “is indicative of some lingering credit penalty,” Goldfield said. “This is not as good as a highly rated municipality would achieve, but it is a lot better than municipalities who are in severe distress and have not addressed their issues the way Harrisburg has.”

Scranton, which has been in the state’s program for distressed cities since 1992, last month sold $12.5 million of one-year notes at a yield of 5.61 percent, and portions will be redeemed monthly at par beginning Feb. 1 until maturity, data compiled by Bloomberg show.

Harrisburg’s plight stemmed from an overhaul and expansion of an incinerator that didn’t generate enough revenue to cover the debt. Surrounding Dauphin County and bond insurer Assured Guaranty Municipal Corp., the biggest creditors, made incinerator debt payments after the city started skipping them in 2009.

Bankruptcy Attempt

Harrisburg attempted a bankruptcy filing in 2011 and later that year was placed under state receivership. On Jan. 16, state officials asked Pennsylvania’s Commonwealth Court to remove the city from receivership.

“Things are getting better for Harrisburg,” Cory Angell, a spokesman for Lynch, said by telephone yesterday.

Harrisburg Controller Charles DeBrunner said officials are analyzing the need for the borrowing.

“People are cautious about debt, as they should be,” he said by telephone. “There’s a genuine concern and fear of debt.”

Harrisburg, which doesn’t have a credit rating, last sold debt in 2010 by borrowing against its parking revenue and incurring rates as high as 12.5 percent, said Goldfield.

In March, Harrisburg plans to make its first general-obligation bond payment since September 2011, Goldfield said. Bond insurer Ambac Assurance Corp. has covered the payments since March 2012.

Joyce Davis, a spokeswoman for Mayor Eric Papenfuse, said she didn’t have an immediate comment from the mayor on the proposed financing.

To contact the reporter on this story: Romy Varghese in Philadelphia at rvarghese8@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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