Strapped City Seeks Hedge Fund Help

Aug 8 2012 | 9:06am ET

A struggling Pennsylvania city may turn to a hedge fund to keep itself afloat.

Scranton, a former major coal-mining center in northeastern Pennsylvania, has been trying to fill a budget gap for months. Now, it's following the state capital’s lead in seeking the money from a hedge fund.

Scranton is in talks with the unidentified hedge fund that bailed out Harrisburg, city officials said during a City Council meeting last week, looking to borrow up to $18 million.

The hedge fund isn’t Scranton’s only option: It is also pursuing the money from a Wall Street firm, City Council President Janet Evans said.

“City Council and its solicitor have been trying actively for weeks to secure financing from a Harrisburg firm and a Wall Street firm,” she said. Any such plan would have to win the approval of a state-appointed recovery coordinator.

Scranton suffered a blow in June when M&T Bank dropped out of a bond sale that would have kept Scranton out of bankruptcy this year. The bank was spooked when the city allowed the Scranton Parking Authority to default on a bond payment.

The hedge fund plan is the brainchild of investment banker Michael Judge, who told city solicitor Boyd Hughes about the hedge fund and its financing for Harrisburg. But despite Hughes’ authorization for Judge to proceed, the hedge fund refused to deal with him, saying he had no standing to represent the city.

Still, the hedge fund financing remains a possibility.

“We’re always open to new ideas,” Mayor Chris Doherty said. “It’s important that we work together.”

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