New twist in Harrisburg parking deal

EQT and LambdaStar have made a $140m all-cash offer for the heavily-indebted trash incinerator that brought the Pennsylvania capital to the brink of financial disaster. But the firms also made their offer conditional on a lease of the city’s parking assets, which LambdaStar has been pursuing for nearly three years.

EQT Infrastructure Partners and LambdaStar Infrastructure have submitted a joint $140 million bid for a heavily indebted Harrisburg waste incinerator. But they've made the all-cash offer dependent on a lease of the city's parking garages, marking the latest twist in LambdaStar's nearly three year-old struggle to wrestle the parking assets out of the hands of Pennsylvania's distressed state capital.

In a joint letter to the incinerator’s operator, EQT and LambdaStar said they wanted to pursue a 99-year lease of the incineration plant as part of a “desire for a comprehensive solution to Harrisburg’s financial difficulties”, italicising “comprehensive solution” in their letter to the authority.

Harrisburg's trash incinerator:
the cause of, and potential
solution to, the city's debt crisis

The incinerator, run by an independent municipal agency known as The Harrisburg Authority (THA), has pushed the city toward default, according to a report on Harrisburg’s troubled finances by New  York law firm Cravath Swaine and Moore. Cravath says in the report that the city has guaranteed about $242 million in debt principal from the incinerator, and annual debt service payments are estimated to be between $14.6 million and $27.6 million, putting it in a tough spot financially.

“Both THA and the City have been unable to meet their increasingly burdensome debt service obligations for the [waste incinerator] debt, with the situation deteriorating to the point that the City’s ability to make payments on general obligation bonds has been jeopardised,” Cravath concluded in its report.

To save the city from bankruptcy, the state of Pennsylvania is now overseeing Harrisburg's finances under a law known as Act 47. The law allows the state to declare certain municipalities to be “financially distressed” and help them chart a path to fiscal soundness by restructuring their debt obligations and undertaking other reforms.

The bid for the incinerator resulted from a solicitation process launched by the city's Act 47 team, according to the two firms' letter to THA, which also demanded exclusivity if a transaction was to go forward.

LambdaStar and EQT also said their bid for the incinerator was conditional on the closing of a parking concession LambdaStar has been pursuing for the past few years. In 2008, LambdaStar signed an agreement with former Harrisburg Mayor Stephen Reed to lease the city’s parking assets for $215 million. But the deal was unanimously voted down in the City Council in November of that year.  

EQT and LambdaStar said in their letter to THA that they would not be interested in the incinerator lease if they could not secure a $215 million, 75-year lease, or a $195 million, 50-year lease of Harrisburg’s parking garages.

LambdaStar and EQT argued that the sale of the incinerator is not viable unless some of the debt on the incinerator is retired, and that only the sale or lease of parking assets could raise enough cash for the city to retire that debt.

But it is still not clear how EQT and LambdaStar plan to execute the bid. As early as last year, LambdaStar had still not held a first close on its debut infrastructure fund, which has been targeting $1.5 billion. And the EQT/LambdaStar consortium is facing competition from local waste operator Lancaster County Solid Waste Management Authority (LCSWMA), which submitted a $124 million bid for the incinerator plant. 

Robert O’Donnell, who coordinates the evaluation of the city’s troubled finances under the Act 47 programme, said the LambdaStar proposal was “very preliminary” and “really has not had time to be fleshed out”. He said the LCSWMA proposal has established more details.

EQT, which recently made an investment in US cooking oil distributor RTI, has committed about 55 percent of its €1.2 billion infrastructure fund, a partner at the firm previously told Infrastructure Investor

EQT and LambdaStar did not return calls for comment as of press time. A spokesperson for the Mayor’s office did not return a request for comment.