Harrisburg (9661MF), Pennsylvania’s insolvent capital, says it will miss general-obligation bond payments for the first time next week as its receiver seeks approval for a plan to sell assets.
The city, carrying a debt load of more than five times its general-fund budget, will miss $5.27 million in bond payments due March 15 on $51.5 million of bonds issued in 1997, according to a notice its receiver posted on the Electronic Municipal Market Access system, a database for filings by debt issuers.
The default is the latest for the $3.7 trillion municipal market, which has seen the number grow while remaining rare. The rate of U.S. municipal-bond defaults doubled to 5.5 a year in 2010 and 2011, from 2.7 in the previous 39 years, Moody’s Investors Service said this week in a report. Stockton, California, last month voted to default on some of its bonds.
“It’s a worrisome trend if it becomes more commonplace” for communities to expect bond insurers to pick up debt payments, said Alan Schankel, director of fixed-income research at Janney Montgomery Scott LLC in Philadelphia. Municipal issuers may become increasingly willing to default even if there is no insurance for bondholders, he said.
“If it’s OK to hurt the bond insurer, is it OK to hurt bond holders?” Schankel said. Read More