Pennsylvania’s Scranton Risks Default on Gap, Moody’s SaysBrian Chappatta
Scranton, Pennsylvania’s sixth-most populous city, risks defaulting on its obligations if it can’t close a $20 million budget gap for next year, Moody’s Investors Service said.
The city of about 76,000 residents faces a Nov. 15 deadline to introduce a spending plan for the year beginning Jan. 1. Without closing that shortfall, Janney Montgomery Scott and Amalgamated Bank will probably withdraw from planned financing that would give the municipality positive operating cash flow, Moody’s said in a report today.
Without that funding, “the resulting liquidity squeeze would leave the city with few options to meet its financial obligations, raising the threat of default or bankruptcy,” Michael D’Arcy, a Moody’s analyst, wrote.
Scranton, about 120 miles (193 kilometers) northwest of New York, faced a similar issue in June 2012 when city council refused to pay almost $1 million on parking-authority bonds, causing the agency to default. The debt was guaranteed by the city. Another crisis “could have more severe effects,” Moody’s said.
The city, which is in Pennsylvania’s program for distressed localities, has $195 million of long-term debt, including about $77 million of fixed-rate general obligations and $49.5 million of the guaranteed parking securities, according to Moody’s.
Scranton unlimited-tax general-obligation bonds maturing in September 2028 traded Nov. 4 at an average yield of 6.14 percent, or 2.76 percentage points more than benchmark munis, data compiled by Bloomberg show. That’s the widest spread since Sept. 19.
The city said in a filing last month that it failed to submit its audited financial statements for last year. It said in September the documents would be done by the end of October. It now projects they’ll be completed by Nov. 30.
Janney was scheduled to underwrite a Scranton bond sale this year that was subsequently delayed, and has made its participation contingent on a balanced 2014 budget, according to Moody’s. Amalgamated is the only bidder for a note sale scheduled for January, the ratings company said.
A voice-mail left with Scranton’s business administration department wasn’t immediately returned.
Keith Pilkington, a spokesman for New York-based Amalgamated, didn’t immediately return an e-mail requesting comment on the report. A voice-mail left with the marketing services department at Philadelphia-based Janney wasn’t returned.