Tuesday, March 30, 2010

Pennsylvania State Capital Misses Loan Payment

As regular readers know, we've been fascinated by the comings and goings in Harrisburg, PA - Pennsylvania's capital city. Harrisburg has withheld payment on a loan obligation to Covanta for a waste-to-energy incinerator financing that Covanta provided (Covanta being a large waste-to-energy operator and thus a partner to municipalities all over the US).

Today, Harrisburg announced that for the third time this year, on Thursday April 1, 2010, it will not meet its legal obligation to Covanta (sadly, not an April Fool's joke). Covanta, chaired by Sam "Gravedancer" Zell, has not yet put Harrisburg into default and is considering its options. Bloomberg article below [emphasis added]:
Harrisburg, Pennsylvania, to Miss Incinerator Loan Payment
2010-03-30 20:17:19.538 GMT

By Dunstan McNichol
March 30 (Bloomberg) -- Harrisburg, Pennsylvania, the capital of the sixth-most-populous U.S. state, will miss an April 1 loan payment to Covanta Holding Corp., said Michael Casey, the city's interim business manager.
Harrisburg faces $68 million in debt service payments this year connected to a trash-to-energy incinerator that Fairfield, New Jersey-based Covanta operates. The payments on the $282 million in incinerator debt are about four times what the city of about 47,000 raises through property taxes, according to its budget.
The city is scheduled to pay Covanta $637,500 April 1. The payment is the fifth installment on a $20.7 million Covanta advance the city guaranteed in 2008 on behalf of the incinerator's manager, the Harrisburg Authority. Covanta runs 64 waste-to-energy facilities in the U.S. and abroad, according to its 2009 annual report.
"We have the cash, but we do not plan to pay them on the first of April," Casey said in a phone interview today. [TILB - Sam Zell is getting Angry!] "They are working with us on a forbearance program for the rest of the year," meaning a plan to give the city some leeway on debt payments, he said.
Casey said the city is talking with the authority, Dauphin County, a guarantor of some of the bonds, and Hamilton, Bermuda- based Assured Guaranty Municipal Corp., their insurer [TILB - Wilbur Ross is getting Angry!], on a plan to restructure the debt while the city draws up a recovery strategy.

Asset Sales

That plan will include selling unspecified city assets, raising the county's trash-dumping fees at the incinerator and refinancing a portion of a $34 million working capital loan that is scheduled to be paid in full in December, Casey said. Mayor Linda Thompson isn't considering a bankruptcy filing, he said.
"And frankly, we see no need of it, the way things are going," he said.
Covanta is cooperating with the city and is awaiting its recovery measures, Jim Klecko, regional vice president for Covanta, said in a telephone interview today from his office in Lancaster, Pennsylvania.
"They have given us a real good feeling that they don't expect to go into bankruptcy," he said.[TILB - "a real good feeling"? How about the cash they are withholding from you??]
In addition to the debt service, the city owes another $12 million in payments on eight series of bonds and notes of its own, according to budget documents.
Thompson didn't return messages seeking comment today.

Missed Payments

Covanta, whose chairman is Tribune Co. owner Sam Zell, reported annual revenue of $1.55 billion in 2009.
The city has missed two payments on the incinerator debt this year. [TILB - oops!]
On March 1 the authority tapped debt service reserves to cover $2 million in payments due on its Series 1998A and 2003 Series A, B and C bonds after Harrisburg failed to honor its guarantee, according to March 8 notices to bondholders. A $425,000 payment, for which there is no such reserve, is due May 1, according to a schedule prepared for the City Council by Cincinnati-based Management Partners Inc., which was hired by Pennsylvania to develop a recovery plan for the city.
Dauphin County, where Harrisburg is located, has sued the city seeking $15 million, including reimbursement of $8.9 million in incinerator swap and debt service payments it has made on the city's behalf since last year, according to the county's legal complaint. [TILB - We love the county vs. city dynamics]
City Controller Dan Miller, who has advocated seeking Chapter 9 municipal bankruptcy protection instead of selling assets, said he doesn't think the city has enough cash to make the Covanta payment along with $4 million in city bond payments and a $1 million payroll that are also due April 1.
"I think we're going to have trouble making those payments, let alone the $600,000 to Covanta," he said in a telephone interview from his office in Harrisburg today.
Harrisburg's credit rating was slashed to five levels below investment grade in February by Moody's Investors Service. [TILB - If you cut five levels at once, it implies you weren't paying attention. These don't arise out of left field.]

For Related News and Information:
For Pennsylvania Municipal Issuer data: SMUN PA .
To see U.S. state finances at a glance: MIFA .
Pennsylvania 2020 G.O. bond: 70914plc DES .

--Editors: Mark Tannenbaum, Walid el-Gabry

To contact the reporter on this story:
Dunstan McNichol in Trenton, New Jersey, at +1-609-394-0737 or dmcnichol@bloomberg.net.

To contact the editor responsible for this story:
Mark Tannenbaum at +1-212-617-1962 or