Philly Deals: Trash to near-junk-bond status in Montco

Government-owned, taxpayer-funded trash-to-energy plants in Harrisburg and Camden County have fallen many millions below the financial projections of the people who sold them years ago.

It's not that ugly in Montgomery County, but even there, towns are burning less trash than expected:

Moody's Investors Service this week cut its credit rating for Montgomery County Industrial Development Authority's $34 million 2002 bond issue, which is financed by the incinerator at 1155 Conshohocken Rd., Plymouth Township, to Baa3, just above junk-bond status, from A2, low credit risk.

"The economic decline appears to have led to meaningful reduction in waste," a team of credit analysts at Moody's Investors Service led by Esra Akyol complained in a report.

Blame recycling, better packaging, a drop in consumption, or cheaper private haulers. The result is less trash to burn at guaranteed municipal rates.

The incinerator burns 1,215 tons of trash a day from 22 mostly wealthy Montgomery County towns and contracts commercial and industrial trash to make up any shortfall — usually at lower rates, which cuts the plant's income. It uses the heat to power steam electric generators, selling the electricity to Exelon Corp.

There are two reasons for the ratings cut:

In 2009, the plant was sold by its former owner, France-based Veolia Environnement, which also runs Philadelphia's steam-heating loop, to Morristown, N.J.-based Covanta Corp., which also operates a Chester plant and a couple of Philadelphia trash-transfer stations. Covanta is junk-bond-rated, and that hurt the Plymouth plant's rating, too.

Also worrisome: Plymouth's increased reliance on "third-party source waste delivery" to replace the drop in township trash. The incinerator, to pay its bills, charges towns more than private companies pay, which has provoked litigation over the years from towns, apartment landlords and other trash sources that would rather be able to shop for cheaper landfills.

In Plymouth's favor, Moody's also noted that Covanta has a cash reserve for the plant and that it had a "strong track record of supporting its operating plants."

"Waste is fuel for these plants," and "there's plenty of waste out there" when towns fall short, Covanta spokesman James Regan said.

Montgomery County Industrial Development Authority bosses did not return calls.

Cost cuts

Philadelphia has cut $1.4 million a year from its budget-busting legacy-borrowing costs by refinancing $102 million in 5.39 percent bonds to a lower 3.10 percent rate.

"We reduced debt service by $19.9 million in total" from next year through 2026, said city treasurer Nancy Winkler, on her way back to the city from the New York sale.

The deal refinanced bonds originally issued to pay for former Mayor John F. Street's slum-clearing Neighborhood Transformation Initiative.

A group led by Citibank and including Loop Capital, Barclays, Janney Capital Markets and PNC paid the city a $12.4 million premium for the old bonds. The city then issued $91.3 million of new, lower-rate bonds.

The savings, compared to the city's most recent bond issue, works out to about 50 basis points — half a percent, which adds up quick — thanks to low U.S. interest rates, the city's improved Standard & Poor's bond rating (BBB+, up from BBB), and "knowing how to push the banks," said Winkler, who worked at muni-bond adviser PFM before joining the city administration under Mayor Nutter.

Water's fine

The Wharton School holds its yearly Venture Finals, a sort of Shark Tank competition for MBA-student tech-company founders, at the yearly Wharton Business Plan Competition on Wednesday starting at 1 p.m. at Huntsman Hall (38th Street southeast of the Locust footbridge).

Up for grabs: the $30,000 Michelson Prize and lesser awards.

It's free to those who register at https://bpc.wharton.upenn.edu/venturefinals.html

Contact columnist Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, or @PhillyJoeD on Twitter.