While Detroit fights, Harrisburg folds

"While Detroit, which filed a record $18 billion bankruptcy in July, wants to cut pensions and impose losses on bondholders, Harrisburg struck a deal to eliminate its insolvency that avoids reducing pensions," writes Bloomberg's Romy Varghese here. Harrisburg's refinancing is based on "a $286 million sale of tax-exempt bonds to finance a lease of its parking system. The deal is set to price today...

"By negotiating with creditors and unions out of court, Harrisburg avoided the expense of bankruptcy while building the framework for a sustainable future... The city owes $362.5 million, or about seven times its general-fund budget, because of debt guarantees on a 2003 overhaul and expansion of an incinerator. A local waste-management agency is buying the facility, which doesn't generate enough revenue to cover the debt. Proceeds of that transaction and the lease of its parking system go toward creditors...

"Eric Papenfuse, a 42-year-old Democrat who will be inaugurated as mayor next month, will have balanced budgets for the next three years, according to the recovery plan." Papanfuse, a bookstore owner, was elected over opponents who demanded a tougher deal with bondholders.

"Surrounding Dauphin County and bond insurer Assured Guaranty Municipal Corp., the biggest creditors, made incinerator debt payments after the city started skipping them in 2009. Harrisburg was placed under receivership in 2011. William B. Lynch, the state-appointed receiver, in September received court approval for the recovery plan started by his predecessor, David Unkovic.

"Last week, Lancaster County Solid Waste Management Authority sold $129 million in tax-exempt revenue bonds to finance its purchase of the incinerator. Securities rated AA-, fourth-highest, and maturing in December 2033 priced to yield 4.89 percent, or about 1.04 percentage point over benchmark munis, data compiled by Bloomberg show. Bonds of the same maturity with a guarantee from Dauphin County and rated one step higher priced to yield 4.65 percent.

"In today's offer, the Pennsylvania Economic Development Financing Authority is selling the parking-revenue bonds to finance its 40-year lease of city lots and garages... After the lease and sale of Harrisburg's assets, Assured Guaranty, a unit of Hamilton, Bermuda-based Assured Guaranty Ltd. (AGO), and Dauphin County would recover at least $210 million on claims totaling $298.5 million.

"They would receive proceeds from a fuel tax, if authorized by the state legislature, and from parking revenue that could satisfy the remainder. Unions also agreed to receive less than they are due, though pensions will be intact."