Plan to Pay Off Incinerator Debt

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Harold Dalton
8 years ago
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1 Plan to Pay Off Incinerator Debt The best approach for Harrisburg s financial stability is to pay off the incinerator debt. This plan requires that all parties, The Harrisburg Authority (THA), City of Harrisburg (City), Dauphin County (County) and the Incinerator Bond/Note Holders (Investors), share in paying off the debt. Debt reduction can be achieved by: Using net operating income from the Incinerator. Making debt service payments guaranteed by City. Making debt service payments guaranteed by County. Securing principle and/or interest rate reductions from the Investors. This plan will not require the sale of any city revenue-generating assets or increase any City taxes. However the discretionary portion of the 2010 city budget will be reduced by approximately $12.2 million dollars or 23%. 1 (The financial condition of the 2010 City budget is dire; this plan only addresses the Incinerator crisis and does not address the financial issues facing the City for the remainder of 2010, although the same analysis of essential services and cost cutting measures used for the 2011 proposed City budget could be adopted for the remainder of 2010). Significant Background Information: Currently the outstanding principal on the Incinerator debt is $288 million. Total principle and interest on this debt would amount to approximately $458 million. (This does not include a $25 million agreement with CIT Energy that is being litigated. We are not addressing that obligation at this time although it is a potential future liability.) Debt service payments on the total Incinerator debt are approximately $20 million per year. Of this total, County is responsible for approximately $10 million and the City is responsible for the other $10 million 2. The City is guarantor on 100% of the $288 million Incinerator debt. THA has the initial obligation to pay the debt. If they are unable to pay, the City is required to pay. County is second guarantor on $145.6 million of the $288 million incinerator debt. They guaranteed debt issues D&E of 2003 and C&D of If THA and City are unable to pay this debt, County is required to pay $145.6 million. On December 1, 2010, the C&D debt of 2007 is due, totaling $34.7 million. If neither THA nor City is able to pay these bonds, which is likely, County will be required to pay the bonds. Fortunately the incinerator is generating approximately $5.5 million that could pay toward annual debt service 3.

Debt reduction can be achieved by: Using net operating income from the Incinerator. Making debt service payments guaranteed by City. Making debt service payments guaranteed by County.

2 The Plan: We propose the following plan as a viable solution to the Incinerator crisis. This is based upon careful analysis of the City budget, THA budget, bond documents and bond and note payment schedules The plan is low cost. This plan will not require the sale of any city revenue generating assets or increase in any City taxes (nominal utility increases would be required). It does not require debt refinancing and restructuring or the costly appraisal and sale of assets. Legal fees would be limited. It could be relatively easy to achieve, assuming the parties involved are able to reach agreement. This plan calls for an agreement between the four central parties involved. The following suggested terms provide benefits and require concessions from each party. We attempted to make the terms fair. Not all issues have been fully detailed, as negotiation among the parties is necessary. This plan attempts to provide a basic outline that if agreed to in general, can serve as a means to pay the Incinerator debt in the best manner for all parties. Details of the Plan: The Harrisburg Authority (THA) Beginning in 2011 THA will pay a minimum of $5.5 million annually towards debt service guaranteed only by the City. THA will give 100% complete control of the Incinerator to County via a management agreement or some such vehicle. Covanta can continue to operate the Incinerator; however County will have control of the Incinerator, including all finances. The City will have 100% access to review/audit the Incinerator s financial and operating records. All net operating income in excess of $5.5 million generated by the Incinerator will be required to pay debt service as allocated: 1/3 to City-only guaranteed debt and 2/3 to County-guaranteed debt. Harrisburg City (City) Beginning in 2011 the City pledges Harrisburg Parking Authority (HPA) revenue totaling $4.5 million per year to pay annual incinerator debt service payments on Cityonly guaranteed debt. Beginning in 2011 the City recognizes the HPA revenue appropriation to Incinerator debt service and pledges to adopt a realistic and balanced budget annually 4. Working with Investors of Incinerator debt, the City negotiates reductions in principle and/or interest and agrees to share such reductions with County. Harrisburg City Council immediately appoints a qualified representative to pursue, with experienced and qualified professionals, a contingent plan to file Chapter 9 Bankruptcy if this plan of cooperating entities ultimately fails.

This plan will not require the sale of any city revenue generating assets or increase in any City taxes (nominal utility increases would be required).

3 Dauphin County (County) County pays/refinances $34.7 million of debt due 12/1/10. Beginning in 2011 County maintains 100% control of the Incinerator, including all finances. The County can reduce their annual debt service burden by increasing Incinerator net operating income. This could be achieved if the County increases Incinerator tipping fees. Working with Investors of Incinerator debt, the County negotiates reductions in principle and/or interest and agrees to share such reductions with the City. Bond/Note Holders (Investors) Bond/note trustees provide a list of all bondholders and beneficial bondholders. The Investors are requested to form an Ad Hoc Committee in regard to THA Incinerator debt. Negotiations begin immediately with the Ad Hoc Committee, THA, City and County to secure principle and/or rate concessions relating to THA Incinerator outstanding debt. Bankruptcy Contingency Should this plan fail, the City must pursue other options. Bankruptcy would then be a positive tool that could help solve Harrisburg s financial crisis. A continued and comprehensive analysis of declaring bankruptcy is a required element of this plan. Not only is it a distinct possible future option, it will pressure both County officials and Investors to focus on achieving a solution that encompasses concessions from all parties. In the event an agreement cannot be reached, City Council should file Chapter 9 Bankruptcy as by far the superior option for the future of City. Conclusion This plan does not claim to have the final answer to every issue involved in this crisis. This is an attempt to outline a serious solution that can serve as a starting point in resolving the Incinerator debt. 1 The 2010 City budget was inflated by $7.7 million of revenue that it is unlikely to receive. The direct allocation of HPA revenue to pay Incinerator debt service accounts for $4.5 million reduction in discretionary spending. 2 The remaining amount of annual debt service payments guaranteed only by City is approximately $10 million from 2011 to 2021 and then is reduced to approximately $6 million from 2022 to Per THA s adopted 2010 budget, the Resource Recovery Facility will generate approximately $5.5 million of net operating income. These funds are available for annual debt service payments. Covanta estimates it can generate approximately $5 - $6 million of net operating income available for debt service. 4 Reductions in staff and services will be required to achieve a realistic and balanced 2011 City budget. The final decisions on achieving these reductions are proposed to be made by City administration, Department Heads, and City Council. Difficult decisions will be necessary for all departments.

Working with Investors of Incinerator debt, the County negotiates reductions in principle and/or interest and agrees to share such reductions with the City.

4 Resource Recovery Debt City/County Ultimate Gaurantees City Final County Final Guarantor Guarantor Total Bonds: Gtd RRF Rev Bonds 1998 Series A 11,240,000 11,240,000 Gtd RRF Rev Bonds 2003 Series A, D, E & F 36,575, ,980, ,555,000 (City A&F, County D&E) Notes: Gtd RRF Notes, 2002 Series A 15,620,000 15,620,000 Gtd RRF Notes, 2003 Series B & C 53,370,000 53,370,000 Gtd RRF Notes, 2003 Series C 0 Gtd RRF Notes, 2007 Series C 23,920,000 23,920,000 Gtd RRF Notes, 2007 Series D 10,765,000 10,765,000 0 Covanta Loan 25,500,000 25,500, ,305, ,665, ,970,000

2002 Series A 15,620,000 15,620,000 Gtd RRF Notes, 2003 Series B & C 53,370,000 53,370,000 Gtd RRF Notes, 2003 Series C 0 Gtd RRF Notes, 2007

5 City of Harrisburg 2011 Discretionary Budget Calculation 2010 General Fund Budget 64,710,369 Adjustment to Reflect Actual 2010 Revenue (7,710,369) 2010 Projected Revenue 57,000,000 Less 2010 Debt Service Payments 12,826,735 Discretionary Funds Available After Debt Service 44,173,265 Allocation of HPA Revenue to THA Incinerator Debt 4,500, Discretionary Budget Available 39,673,265

Debt Service Payments 12,826,735 Discretionary Funds Available After Debt Service 44,173,265

FCC REFINANCING SIGNED

FCC REFINANCING SIGNED Madrid, 1 st April 2014. In compliance with the disclosure requirements under article 82 of Act 24/1998, of 28 July, on the Securities Market, FOMENTO DE CONSTRUCCIONES Y CONTRATAS,