Scranton on Tuesday received proceeds from an $11.32 million bond issue that will allow the financially distressed city to cover payrolls and overdue bills, officials said.
The private-placement bond issued by financial firm Janney Montgomery Scott comprised $9.85 million in unfunded debt and $1.47 million in refinancing, for a total of $11.32 million in borrowing.
Read the bond closing statement HERE
"We're happy with this and ready to move on to the next step," city Business Administrator Ryan McGowan said.
That next step is an additional $9.75 million in unfunded-debt borrowing that is needed to keep the city afloat for the remainder of the year, he said. To that end, the city has a hearing scheduled today in Lackawanna County Court to ask a judge for approval to seek the additional borrowing.
The two rounds of unfunded debt are only part of the city's plan to restore financial stability. A revised recovery plan adopted Aug. 23 calls for raising numerous revenues as alternatives to real estate tax hikes on city residents, such as a commuter and amusement taxes and significantly-increased contributions from nonprofits.
"There's a myriad of things that still need to be done and this (Janney bond) was just the first step of much-needed revenue that was placed within this year's budget," Mr. McGowan said. "We know that we still have a lot more to do to get the city back on the path to solvency."
The $11.32 million bond issuance has an interest rate of 8.9 percent and will be paid back over 10 years, he said.
"We were hoping for a little bit lower (interest rate), but this is what we have to work with and we've got to move on from there," Mr. McGowan said.
The city also had been hoping to obtain the Janney bond financing by Oct. 1, but it got held up by delays in completing certain facets of the city's annual audit, Mr. McGowan said. Officials wanted to avoid another cash-crunch crisis of the kind that threatened the city's survival this summer and led to a minimum-wage payday and court battles with employee unions. The city got some breathing room in recent months through a state loan/grant package and a short-term tax-anticipation note from a union-owned bank, but those funds only lasted so long.
With city coffers again starting to dwindle, the bond proceeds were anxiously awaited. However, the city's next payroll of about $1 million that is due Friday was not in jeopardy because the city as of Tuesday had $800,000 cash-on-hand and was expecting to receive other revenues to make up the difference, Mr. McGowan said.
Council President Janet Evans said, "We were very confident that this financing with Janney would come through."
Now that it has, bond proceeds will be used to knock out some $3.5 million of unpaid bills called accounts payable, Mr. McGowan said.
"This will allow us to get our payables down," Mr. McGowan said. "We've very thankful that our major vendors have worked with us over last few months. It's important that we pay our vendors in a timely manner. That's something we haven't be able to accomplish this year and this should alleviate some of the concerns our vendors have had."
Along with providing the city with cash from unfunded debt, the bond proceeds also will refinance four series of a 2003 bond and pay for costs and expenses of issuance.
Fees for the various bond counsels, attorneys and firms involved in the transaction totaled $542,000, according to closing documents.
The fees included $22,500 paid to city council solicitor Boyd Hughes and $15,000 paid to city administration solicitor Paul Kelly. These fees to the two city solicitors were for necessary work they performed on the bond issuance that went beyond the scope of their regular duties, Mrs. Evans said.
"In the past, we've witnessed rubber stamp councils who merely approved every issue without any involvement, without having thoroughly examined it and this council wanted to be fully involved," Mrs. Evans said. "We're the watchdog of the people. We are the financial watchdog, so it was imperative that council be involved."
Meanwhile, the refinancing portion of the bond issuance initially was pegged at $1.6 million but ended up at a slightly lesser amount of $1.47 million, Mr. McGowan said.
Contact the writer: jlockwood@timesshamrock.com