Pennsylvania Cancels $198.7 Million in Bonds Over Disclosure

Pennsylvania canceled a $198.7 million bond deal priced last week because the state’s audit for the year that ended in June hasn’t been released.

The Commonwealth Financing Authority offering, with two tax-exempt series and one taxable, was priced Dec. 2. During the closing process, questions arose over the risks of attesting to financial figures based on fiscal 2013 in the offering documents, said Peter Tartline, deputy secretary in the budget office.

The state’s audit, known as a comprehensive annual financial report, is expected to be released by Dec. 31, he said. If its figures differed from bond documents, officials could be subject to scrutiny by the U.S. Securities and Exchange Commission, he said.

“There’s too much risk involved,” he said by telephone from the capital, Harrisburg. “The best thing to do was to cancel it and let them do it again after the official CAFR numbers are out.”

Marcey Zwiebel, a spokeswoman for PNC Capital Markets LLC, which managed the bond sale, said the company doesn’t comment on the actions of government or individual trading activities of its counterparties.

The revenue bonds were intended to finance a program for alternative energy development and refinance older securities, according to the preliminary offering statement.

The SEC has increased its focus on the municipal market since the credit crisis and 18-month recession that ended in June 2009. The agency faulted the governments of New Jersey, Illinois and Harrisburg, Pennsylvania, for misleading investors about their financial state.

SEC Fine

Last year, in a case involving an agency in Washington state, the SEC levied its first fine against a municipal issuer that misled investors.

A $750 million Pennsylvania general-obligation bond sale, originally slated to be sold this week, will also be postponed until after the audit is released, Tartline said.

Steven Heuer, director of the bureau of revenue, capital and debt, said he couldn’t say whether Pennsylvania had ever canceled a sale after pricing before.

“It is certainly inconvenient for a lot of folks,” Tartline said. “But it’s probably the prudent thing to do. And the risk avoidance is probably the greater value here.”

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