April 1, 2010

Harrisburg Incinerator Nearer to Bankruptcy - Covanta Contract.

Mutual Insurance: You hit us, we hit youse.  Are the bonds insured by Hamilton, Bermuda- based Assured Guaranty Municipal Corp.

Covanta has a real good feeling. 


Source: bloomberg.com

Harrisburg, Pennsylvania, to Miss April Loan Payment

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 or has an investment in 64 energy-generation facilities globally, including 45 like the Harrisburg plant that convert waste to energy, 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. “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, 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. 

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.
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

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.
To contact the reporter on this story: Dunstan McNichol in Trenton, New Jersey, at dmcnichol@bloomberg.net.
Last Updated: March 30, 2010 18:25 EDT

No comments: