Rating firm S&P downgrades West Penn Allegheny
By Alex Nixon
Published: Tuesday, Dec. 4, 2012, 10:10 a.m.
Standard & Poor's Ratings Service downgraded the credit rating of West Penn Allegheny Health System on Tuesday, less than a week after the nearly bankrupt hospital operator disclosed a three-month loss and said it may face a lawsuit by the Securities and Exchange Commission.
S&P said it lowered the rating on the likelihood that the system would enter bankruptcy to reduce its $1 billion in bond debt and pension liability as part of an acquisition by Highmark Inc., the state's largest health insurance company.
“The lower rating reflects our opinion of Highmark Inc.'s desire to have WPAHS declare bankruptcy or otherwise restructure its debt and pension obligations prior to any affiliation and the breakdown of the affiliation discussions after WPAHS notified Highmark that it was in breach of the agreement,” analyst Cynthia Keller said.
“Although talks have resumed after a legal ruling prohibited WPAHS from seeking other suitors, there remains significant uncertainty as to whether the parties will reach an agreement that will receive subsequent approval by the Pennsylvania Insurance Department,” Keller said.
West Penn Allegheny spokeswoman Kelly Sorice declined to comment on the downgrade.
Among problems faced by the five-hospital system that also contributed to the downgrade were continuing declines in patient volume, overall financial weakness and the SEC warning, S&P said. The rating dropped further into junk status to CC, from B-. At CC, the system's rating is only one step from the bottom of S&P's scale.
On Thursday, West Penn Allegheny said it lost $24.7 million in the July-September quarter. It also disclosed that the SEC had warned it that it may face a lawsuit over a 2009 misstatement of pension obligations.
The SEC began investigating the system in 2008 after it revealed that it had inflated revenue on financial statements by $73 million. The probe eventually turned up an allegation that West Penn Allegheny had low-balled a 2009 estimate of future pension obligations, according to a memo from board Chairman Jack Isherwood.
In the memo to system employees on Friday, Isherwood said the possible SEC lawsuit “does not relate to any ongoing activity or any past or present accounting practices.”
“On the contrary, the SEC has said it may bring action against WPAHS for disclosures made more than three years ago relating to our pension plan obligations,” he said.
The system intends to respond to the SEC as soon as possible, Sorice said, and argue that legal action is unnecessary.
Meanwhile, talks continue between leaders of West Penn Allegheny and Highmark to finalize the insurer's planned $475 million acquisition of Pittsburgh's second-largest health system, Highmark spokesman Aaron Billger said.
He declined to comment further on the talks or on the S&P downgrade.
Moody's Investors Service and Fitch Ratings also have downgraded West Penn Allegheny's credit rating since late October.
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Investors put squeeze on prospective homeowners’ American dreams
- Modern ‘educational’ gifts entertain STEM kids
- How can I delete my search history on Facebook?
- Big oil pushes limits
- Employers say friends can ease work stress
- Workplaces reach out to vets
- That’s a Jeep Cherokee? No retro in 2014 model
- Cargo bikes offer option on deliveries
- Airline merger reshapes industry’s landscape
- Consol cuts office workers after Murray deal
- Pennsylvania, other states considering bids to host Boeing 777X production