Experts: Harrisburg's planned default will draw attention on bond market WRITTEN BY SCOTT GILBERT Friday, 03 September 2010 03:43 (Philadelphia) -- Some financial experts say Harrisburg's plan to default on a nearly $3.3 million bond payment coming due in a couple weeks will raise concerns on the municipal bond market. Assuming it happens, it will be the second-largest municipal bond default of its kind to occur in the U.S. this year. The largest, amounting to $227 million, happened in Jefferson County, Alabama. David Fiorenza, an economics professor at the Villanova School of Business in Philadelphia, sees a silver lining to Harrisburg's situation. He says the current low interest rates make it possible for cities like Harrisburg to refinance -or re-fund -- bonds they issued years ago. "I do see it as an opportunity for finance professionals in the marketplace as well as the ones who are hired by the municipalities to go in and look at their debt situations and hopefully come out of it with payments back to the insurers," he says. Fiorenza says it would be similar to a home mortgage. The bonds would be called back and reissued at much lower rates, saving the municipalities a lot of money. He concedes, though, it won’t solve all the city's problems. An analyst from Janney Montgomery Scott in Philadelphia tells the Wall Street Journal the missed payment by Harrisburg could raise fears on the bond market that other distressed issuers might be likely to skip bond payments guaranteed by insurance companies.
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2010 Media Report Villanova School of Business