Scranton Hedge Fund Loan
Scranton Turns to Hedge Funds to Avoid BankruptcyWhen a city teeters on the verge of bankruptcy, who should it turn to for a loan? Scranton, it seems, has decided hedge funds may offer the best financing assistance in this dire moment. The Pennsylvania city recently missed a municipal bond payment and its government doubts that conventional lenders will aid it, so it is looking to hedge funds instead.
For cities, bankruptcy can leave long-lasting damage for a city's reputation with creditors and can make it increasingly difficult to secure low-cost financing in the future, so if a hedge fund can provide reasonable lending, Scranton will likely jump at the chance to stave off bankruptcy.
The Times-Tribune of Scranton, Pennsylvania, is reporting that the city government, having recently missed a municipal bond payment, is courting hedge funds for a loan to bolster the city's rotten finances. A city borrowing from hedge funds is the equivalent of an individual taking out a high-interest payday loan or transacting with a pawnshop. It's basically the end of the road for a borrower.
Scranton made headlines a few weeks ago, when the mayor reduced the pay of all city employees to minimum wage to be able to meet the payroll. Here is how the Times-Tribune describes the current situation:
"Shunned by conventional banks and the municipal bond market, Scranton City Council is looking toward lenders of last resort -- hedge funds -- for $18.5 million needed to close a budget gap.
"With a loan default, dubious recovery plan and festering pension crisis staining its credit history, the city is radioactive to most conventional lenders. With few available options, city council plans to court hedge funds. Source