Harrisburg needs the bankruptcy option
Pennsylvania Governor Tom Corbett took the next step in the process of pushing the bankrupt capital of his state towards fiscal recovery today. Bloomberg reports:
David Unkovic, chief lawyer for the Pennsylvania Community and Economic Development Department, is set to run the finances of Harrisburg after Governor Tom Corbett nominated him as the state’s first municipal receiver.
Once approved by a state court, the overseer may act without the consent of the bankrupt capital city’s elected officials. Unkovic’s appointment may be reviewed as soon as Nov. 28.
Unkovic has 30 plus years of experience as a bond counsel. The governor has also hired a Washington law firm to assist Unkovic on his fiscal restructuring efforts. Harrisburg has an impossible pile of debt to service, and much of it needs to be discharged to make the city’s finances sustainable.
Fortunately the legislation that the receiver is working under relegates Harrisburg’s mayor, Linda Thompson, to a sideline advisory role. I’m sure the new receiver will have a few team photos taken with her and then promptly relegate her to parade and ribbon-cutting duty.
One of the biggest tasks that the soon-to-be-confirmed receiver has is to go down to the federal bankruptcy court on Walnut Street and withdraw the petitions that the mayor and state filed objecting to the city’s Chapter 9 bankruptcy filing. Bankruptcy should be the biggest tool in Unkovic’s toolkit to get Harrisburg to solvency.
The reason that Unkovic needs Chapter 9 is that as a state receiver he has no authority to “cram down” bondholders and bond guarantors. He has power to sell the assets of the city but it’s doubtful there will be enough to service the remaining debt even after a fire sale. It was always a little hard to figure this out because Mayor Linda Thompson had not presented a budget and there are no current financials for the city. It’s literally a fiscal mess.
The local paper has already highlighted that Unkovic has direct ties to some of the creditors in the Harrisburg case. The Harrisburg Patriot News reports:
The receiver Gov. Tom Corbett named to lead Harrisburg’s fiscal recovery is deeply connected to three firms that represented bondholders and Dauphin County in the incinerator debt crisis.
David Unkovic worked for Saul Ewing in Philadelphia for 27 years. Saul Ewing represents the biggest creditor of the incinerator debt, Assured Guaranty Municipal Corp., the company that insured much of the more than $300 million in incinerator debt.
There is also an excellent video of Unkovic responding to the conflict of interest question in the Roxbury News (click on the small picture on the upper left will launch a video). Reuters Legal also reported on the conflict story.
Bondholders and guarantors should be treated fairly, but the citizens of Harrisburg must be the prime focus of the debt reorganization. Receiver Unkovic needs the power of the federal bankruptcy code to do that.