Pennsylvania Capital Sets Debt-Market Return in $2 Million Offer
Harrisburg, the formerly insolvent Pennsylvania capital, plans its first debt deal since 2010 as it prepares to end more than two years of state receivership.
City Council last night approved the sale of as much as $2 million in tax-anticipation notes, according to City Clerk Kirk Petroski. Next week, Harrisburg will issue the taxable notes with a yield of 3.76 percent and a maturity of June 30, although the debt will probably be repaid in April, Steven Goldfield, a consultant for the city’s state-appointed fiscal overseer, said by e-mail.
“It’ll help Harrisburg re-establish itself in the market,” Alan Schankel, managing director at Janney Montgomery Scott LLC, said from Philadelphia before the council vote. “It’s a first step in their rehabilitation.”
The move by the community of 50,000, which tried unsuccessfully to file for bankruptcy in 2011, reflects the “orderly process” in which it resolved its debt, unlike in Detroit, Schankel said.
Detroit filed a record bankruptcy in July with about $18 billion of liabilities, and creditors, unions and bond insurers have rejected its proposal filed last week to exit federal court protection.
Yesterday, a Pennsylvania judge issued an order saying the city’s receivership, the state’s only one and which has been in effect since 2011, will end on March 1. The community would remain among the 21 localities in the state’s program for distressed municipalities.
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. (AGO), the biggest creditors, made incinerator-bond payments after the city started skipping them in 2009.
In December, the capital on the Susquehanna River cleared its debt burden of $362.5 million, about seven times its general-fund budget, through the sale and lease of assets such as its parking system, and concessions from creditors.
The tax-anticipation notes are a “relatively inexpensive insurance against the vagaries and uncertainties associated with the timely receipt of tax revenues,” William B. Lynch, the city’s receiver, said by e-mail. “Perhaps even more importantly, it gets the city back into the business of doing business.”
Goldfield said the city is using taxable debt to avoid the expense of bond counsel to certify that the borrowing qualifies as tax-exempt. Lawyers’ fees would tally about $10,000, higher than the $3,200 difference of borrowing on a taxable basis compared with tax-exempt notes, assuming the debt would be repaid by April, he said.
The 3.76 percent taxable yield eclipses the level at which the U.S. government can borrow for 30 years, data compiled Bloomberg show.
That’s “not unreasonable” given Harrisburg’s history of distress, Schankel said.
Natalie Neyer, a spokeswoman for Metro Bank (METR), the buyer of the notes and a unit of Harrisburg-based Metro Bancorp Inc., declined to comment.
Next month, 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.
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.
Harrisburg was placed under state receivership in 2011 after its bankruptcy filing was dismissed by a judge. On Jan. 16, state officials asked Pennsylvania’s Commonwealth Court to remove the city from receivership.
“It is positive news that the city is again entering the credit market,” Harrisburg Mayor Eric Papenfuse said in an e-mailed statement after the council vote yesterday. “We look forward to restoring our credibility in the credit market and to taking another important step in securing Harrisburg’s economic recovery.”
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