WPAHS warned: Default at hand
West Penn Allegheny Health System on Thursday received an official warning from its bondholders, letting the system know it could be in bankruptcy court by the end of the month.
The trustee for bondholders, who are owed about $726 million, issued a notice of default because West Penn Allegheny failed to release audited financial statements last week, health system spokeswoman Kelly Sorice said.
“The notice informed WPAHS that it has failed to furnish audited financial statements for the year ended June 30, 2012, and if we do not remedy this failure within 30 days following receipt of this notice, an event of default will then exist,” Sorice said.
The health system has said it intends to file its audited statements in the next 30 days.
But in the event of a default, the trustee can demand immediate payment of the bond debt, Sorice said.
Accelerating payment of millions of dollars usually leads to a bankruptcy filing because the indebted organization rarely possesses the cash to immediately pay back their lenders, said Stephen Foreman, associate professor of health care administration at Robert Morris University.
“Your only remedy is to go get protection from the bankruptcy court,” he said.
Officials with the trustee, UMB Bank of Kansas City could not be reached for comment.
Foreman predicted West Penn Allegheny and Highmark Inc., which is trying to acquire the health system, will announce a deal with bondholders to reduce the debt this month, before a default occurs.
“I would not think those bondholders would want to go through a bankruptcy proceeding if they can avoid it,” he said.
Highmark spokesman Aaron Billger said officials with the state's largest health insurance company are working on both short-term and long-term plans to restore the health of West Penn Allegheny.
“We're aware of the default notice, and addressing the financial condition of West Penn Allegheny is a top priority,” Billger said.
On Dec. 28, West Penn Allegheny, Pittsburgh's second-largest health system with five hospitals and about 11,000 employees, did not release audited financial statements, missing a deadline established in its agreement with bondholders, who bought about $750 million in bonds in 2007.
Sorice said the financial reports were incomplete because its outside auditors, KPMG, had not issued an opinion on them.
A no opinion means the auditor has found substantial problems with the hospital system's finances, such as not having enough cash to meet provisions of its bond agreement.
West Penn Allegheny and Highmark officials have discussed a deal with some bondholders to reduce the debt the health system owes, officials have said. And Highmark CEO William Winkenwerder has predicted a deal would be finalized this month.
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or firstname.lastname@example.org.