Harrisburg, Pennsylvania, Council Told to Consider Bankruptcy

[wfy9621]

We'll see how many of these "bond insurers" step up to the plate when ALL the cities do the same thing.
Like an earthquake...Everyone files claims, the insurers weasel out.


Harrisburg, Pennsylvania, Council Told to Consider Bankruptcy
http://www.bloomberg.com/apps/news?pid=20601109&sid=ab6OQc35weDI&pos=14

Harrisburg, Pennsylvania, Council Told to Consider Bankruptcy
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By Dunstan McNichol

April 27 (Bloomberg) -- Harrisburg, Pennsylvania, which has missed $6 million in debt payments since Jan. 1, should consider seeking Chapter 9 bankruptcy protection, City Controller Dan Miller told a three-hour special committee hearing.

Miller, the first of four people to testify last night in an "informational session" on insolvency convened by Gloria Martin-Roberts, council president, said bankruptcy may offer Harrisburg relief from $68 million in debt-service payments this year tied to a waste-to-energy incinerator project. Martin- Roberts opposes a bankruptcy filing. [LOL!]

Harrisburg, the capital of Pennsylvania, the sixth-most populous U.S. state, has guaranteed payments on $282 million in bonds on the incinerator, run by the Harrisburg Authority. The payments on the bonds and on a working-capital loan this year add up to four times the amount the city collects in property taxes each year, budget documents show.

"It's not good," Miller said at the start of the hearing before a silent audience of about 20 that included city officials and union members. "Nobody wants to do it, but it's there for a reason," he said. "Maybe for the purpose of helping cities that are in the situation we are in now."

The city this month skipped a $637,500 payment due on a loan to Fairfield, New Jersey-based Covanta Holding Corp., operator of the incinerator.

Missed Payment

On April 23, the Harrisburg Authority told the city that it won't make a $425,282 payment due May 1 on a $17 million bond issue the city has guaranteed, said Robert Kroboth, interim finance manager. Kroboth said it isn't likely that the city will honor its guarantee, meaning the payment will fall to the bond's insurer, Hamilton, Bermuda-based Assured Guaranty Municipal Corp.

"When the trustee informs us we need to make the payment, we do," Betsy Castenir, a spokeswoman for Assured, said yesterday. She said the firm hasn't gotten a notice from the trustee regarding the May 1 payment.

The city has been negotiating with other groups involved in the incinerator project, seeking a 90-day relief period from debt payments. The other groups include Dauphin County, which has guaranteed a portion of the debt, Assured Guaranty, and the Harrisburg Authority. A formal "forbearance agreement" may be presented to the council within two weeks, Martin-Roberts, the council president, said after the hearing.

Alternatives to Consider

Council members should consider asset sales and tax increases before heading to bankruptcy court, said Fred Reddig, the executive director of the state's office of Local Government Services. He suggested following steps recommended in a recovery plan prepared by Management Partners Inc. of Cincinnati, a consulting firm hired to study the city's finances as part of a state municipal support program.

Only one community in the state, Westfall Township in northeastern Pennsylvania's Pike County, has filed for Chapter 9 protection, and the option might not be available to Harrisburg, said Gregg Miller, a partner with the Philadelphia-based Pepper Hamilton law firm. Miller represented Westfall, which entered bankruptcy last year after it was assessed with a $20 million legal judgment. The amount is about 20 times its annual budget.

"It's difficult to get into Chapter 9," Miller said. He said Harrisburg would have to present a proposed debt relief plan to its creditors and get an endorsement from the state before it could seek bankruptcy.

"You have to meet with the state Department of Economic and Community Development and convince them you are deserving of Chapter 9 protection," Miller said.

Opposes Bankruptcy

Martin-Roberts said she is opposed to bankruptcy for the city of 47,000, and convened the hearing to make sure council members have a common base of information to consider.

"There are those of us who feel bankruptcy shouldn't be considered an option," Martin-Roberts said in an interview last week. Patty Kim, another member of the seven-member council, also said at the hearing that she opposes bankruptcy.

Susan Brown-Wilson, the head of the council's Budget and Finance Committee, said she supports a bankruptcy filing because the state oversight process is too time-consuming, and would require a tax increase that Harrisburg can't afford.

"Bankruptcy might be the best option," she said. "This city is so indebted there's really no way out."

Council member Eugenia Smith said she was relieved to hear several of the witnesses say that the city has time to consider its options. "I don't want to rush into anything."

Moody's Investors Service in February downgraded Harrisburg's general-obligation bond rating three levels to B2, five steps below investment grade, from Ba2.

To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at dmcnichol@bloomberg.net.

[wfy9621]

Mas, Vatos.

http://www.ft.com/cms/s/0/e29d90ec-52f6-11df-813e-00144feab49a.html?ftcamp=rss

US cities forced to consider bankruptcy
By Nicole Bullock in New York

Published: April 28 2010 22:20 | Last updated: April 28 2010 22:20

Council meetings in Harrisburg, the capital of Pennsylvania, have weighed issues ranging from snow removal and rubbish collection to a rise in dog fighting, but a meeting this week was particularly unusual. In a sign of the tough times, officials called in experts to discuss the pros and cons of going bankrupt.

“There is no good option,” Dan Miller, Harrisburg city controller, told the city’s administration committee. Mr Miller and some members of the committee advocated exploring bankruptcy as way to get out from under its debts. Other officials at the three-hour meeting worried about the ramifications.

Bankruptcy has never been used widely by municipal authorities, so they have few guidelines. But with cities, towns and counties across the US hard hit by the recession, local officials, investors and analysts are questioning whether bankruptcy could become more common.

The debate stretches from city halls to Wall Street, and the Securities Industry and Financial Markets Association (Sifma) will have its own public airing on the topic at a conference on Thursday in Manhattan.

In 2009 alone, corporations filed more than 11,000 Chapter 11 bankruptcy proceedings. Since 1937, there have been a little more than 600 cases of Chapter 9, the part of the federal bankruptcy code applicable to municipalities, said James Spiotto, a partner at the Chapman and Cutler law firm.

Probably the most high-profile case came in 1994 with Orange County, California. Since the downturn hit, the city of Vallejo, California, went bankrupt in 2008. Last year, filings more than doubled from the previous year but still only came to 10. Among the larger cities, Harrisburg and Detroit have raised the idea, without formal plans.

“Most municipal bankruptcies have been special districts with recourse to only one source of revenue and not large cities that are more diverse and have some sway to get investors to forbear,” said Matt Fabian, managing director of Municipal Market Advisors. The belief that municipalities rarely go bankrupt, or even default, is the bedrock of the $2,800bn (€2,100bn, £1,825bn) municipal bond market where they raise money at relatively low cost for public projects. If filings increase, market experts expect them to be mostly small, special cases.

They have long argued that the fear of higher borrowing rates associated with bankruptcy is severe enough to discourage most.

But with cities such as Harrisburg considering it, these long-standing beliefs are being challenged. “ ... The more bankruptcy is publicly discussed as an option for financial relief, the more its tarnish wears off, increasing the likelihood of its actual use”, Fitch Ratings warned in a report earlier this year.

The biggest impediment, however, could be that the process is much more prohibitive than for companies. Municipalities need permission from their state, and some states do not allow it. The municipality also must negotiate with creditors first, which could prevent a filing.