Feb 27 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,
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
Included in those deals were bond sales late last year,
which generated funds to be paid to GO creditors as part of a
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
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
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 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.