Harrisburg GO creditors received 75 pct under recovery plan -Moody's

Thu Feb 27, 2014 6:43pm EST

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Feb 27 (Reuters) - Creditors holding general obligation debt of Harrisburg, Pennsylvania's struggling capital city, recovered 75 percent of what they were owed under a settlement that helped lift the city out of receivership, Moody's Investors Service said on Thursday.

Together with other recent defaults by bankrupt U.S. municipalities, Harrisburg paints a picture of recovery rates that are now "meaningfully lower" than they were even during the Great Depression, when they averaged as high as 96 percent, Moody's said.

Officials in Harrisburg had put the city into bankruptcy in 2011 because of overwhelming debt from repairs to a troubled trash incinerator. A judge soon threw out the case, however, after Pennsylvania lawmakers barred it.

A spokesman for the receiver's office had no comment on the report. A spokeswoman for the city of Harrisburg did not immediately respond to an email seeking comment.

On Saturday, the city will officially exit receivership following the completion of some major transactions laid out in its recovery plan. In particular, the city has sold the trash incinerator and leased its public parking garages, lots and metered spaces.

Included in those deals were bond sales late last year, which generated funds to be paid to GO creditors as part of a settlement.

The city's direct GO bonds received full recovery. But Harrisburg also used its GO pledge to guarantee various debts from one of its authorities, and those bonds only saw a 66 percent recovery, Moody's said.

In 2009, Harrisburg first defaulted on the debt it guaranteed. It first defaulted on its own GO debt in 2012.

The higher rate of recovery for the city's direct debt "suggests that GO-guarantees could have weaker recoveries in future municipal default situations, despite their identical legal pledges with direct GOs," Moody's analysts wrote on Thursday.

Legal, political and practical factors led to widely varied rates of recovery within the GO-guaranteed creditor group, from 39 percent for some and up to 75 percent for others, Moody's said.

That disparity is similar to recent settlements in Jefferson County, Alabama, as well as proposals to creditors in bankrupt Stockton, California, and Detroit.

It also "suggests a growing pattern of dispersion in recovery rates in municipal defaults, even within the same broad security class," the credit rating agency said.

Investors themselves were paid in full, either by bond insurers or secondary guarantors, including Dauphin County. The county and insurers then became Harrisburg's GO creditors, Moody's noted.

Moody's does not rate Harrisburg's debt. But if it did, the low 75 percent recovery rate would be in line with other municipal bonds that are deep in junk territory at Caa3.

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