Harrisburg Bankruptcy Opponents File Objections to End Case

By Steven Church - Oct 29, 2011 5:06 AM GMT+0700

Ambac Assurance Corp., the insurer of Harrisburg, Pennsylvania’s general obligation bonds, asked a judge to throw out the city’s bankruptcy, joining the mayor, city unions and state officials in opposing the case.

Ambac insured repayment of almost $65 million in city bonds, the company said in papers filed in U.S. Bankruptcy Court in Harrisburg today. Ambac repeated legal arguments already made by the mayor and the state claiming the bankruptcy wasn’t authorized by local or Pennsylvania law.

The bankruptcy petition “contains misleading and inaccurate statements about the current status of the law in the Commonwealth of Pennsylvania and the authority of the city to be a debtor under Chapter 9 of the Bankruptcy Code,” Ambac said in today’s filing.

A majority of the Harrisburg council voted to put the city into bankruptcy earlier this month. Since then, Mayor Linda D. Thompson, Pennsylvania Governor Tom Corbett and creditors have asked the judge overseeing the case to dismiss the bankruptcy petition.

U.S. Bankruptcy Judge Mary D. France scheduled a hearing for Nov. 23 to decide whether to let the case proceed. Objections to the petition are due today.

Unions’ Objections

The city’s Fraternal Order of Police and the local affiliate of the American Federation of State, County and Municipal Employees, which represents non-professional city workers, also filed objections to the bankruptcy. Like Ambac, the unions cited arguments that the bankruptcy filing wasn’t permitted under the law.

Pennsylvania officials and Dauphin County also submitted court papers outlining the legal reasoning behind their contention that the bankruptcy was not authorized by state law.

Ambac’s parent, Ambac Financial Group Inc. (ABK), is in bankruptcy in New York. Ambac Assurance is being overseen by Wisconsin regulators. The bond insurance company that guaranteed repayment of the incinerator bonds, Assured Guarantee Municipal Corp., also filed an objection, based on the state and the mayor’s opposition.

Harrisburg, a city of 49,500 and the seat of Dauphin County, as well as Pennsylvania’s capital, faces a debt five times its general-fund budget because of an overhaul and expansion of an incinerator that doesn’t generate enough revenue. Guaranteed debt is about $242 million, with $65 million overdue, the bankruptcy petition said.

The case is In re City of Harrisburg, Pennsylvania, 11-06938, U.S. Bankruptcy Court, Middle District of Pennsylvania (Harrisburg).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net.