Bloomberg News

Pennsylvania Agency’s Sale Will Pay for Building Tied to Default

January 09, 2012

Jan. 9 (Bloomberg) -- The Pennsylvania Economic Development Financing Authority plans to sell $106.4 million in bonds to buy a Harrisburg office building connected to bonds in default.

The Dauphin County General Authority bought the Forum Place building in the state capital in 1998 with $86.2 million raised with revenue bonds that went into default by 2002, according to a July 2006 SEC opinion in a related matter. The agency said the county defaulted after the building’s occupancy rate fell to 45 percent from almost 100 percent as state agencies moved out.

The state authority, known as Pedfa, will lease the nine- floor Forum Place to the nonprofit Capital Region Economic Development Corp., according to a preliminary official statement for the sale. The offering is planned for as early as this week. Dauphin County will use the money to refund building debt.

Bondholders called for full repayment of about $59.5 million of the county’s debt in April, plus about $3.2 million in accrued interest, according to a notice filed July 15. The interest was paid the same day, the notice said.

A county revenue bond maturing in January 2025 traded as low as 25 cents on the dollar in November 2004. Last month, the same security traded from about 42 cents to 60 cents on the dollar, according to data compiled by Bloomberg.

‘Sustainable’ Structure

The new securities will repay holders of the defaulted bonds in full and “replace the existing debt structure with a sustainable one,” Stephen Drizos, the authority’s director, said by e-mail. The debt will mature from 2013 to 2034.

The development company’s president, David Black, said it will lease the 376,000 square feet (35,000 square meters) of office space plus a 1,090-space parking garage to the state General Services Department, which manages public buildings. The agency already rents 96 percent of the space, under a 25-year deal signed Feb. 4, 2009, the preliminary statement shows.

“The parking makes the lease more attractive and it helps the county with the sale of this building,” said Troy Thompson, a General Services Department spokesman. Tenants also include the U.S. Social Security Administration and the Pennsylvania Local Government Commission, the statement says.

The risk that rental payments won’t meet debt service needs is “modest,” Moody’s Investors Service said in a statement. The credit-rater scores the debt Aa3, its fourth-highest grade.

Harrisburg Debt

The authority finances projects such as industrial and commercial facilities, while the development company works on projects in Cumberland, Dauphin and Perry counties, according to the offering document.

Harrisburg, the seat of Dauphin County, skipped payments on securities related to a municipal incinerator owned by the Harrisburg Authority, and the county covered some of the obligations. The city of about 49,500 residents listed about $60 million in unpaid debts tied to the trash-to-energy plant in a bankruptcy court filing last year.

A bankruptcy petition from the City Council was rejected in November, a ruling that has been appealed. U.S. Bankruptcy Judge Mary D. France said the council wasn’t authorized to act on the city’s behalf before the court.

--Editors: Ted Bunker, Pete Young.

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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