West Penn Allegheny extends talks with bondholders
Highmark Inc. and West Penn Allegheny Health System reached a tentative agreement with bondholders to prevent Pittsburgh's second-largest hospital network from entering into bankruptcy, sources close to the negotiations told the Tribune-Review.
Though not finalized, the agreement to reduce part of the $726 million owed to bondholders would allow the struggling health system to avoid the financial chaos of a Chapter 11 bankruptcy protection proceeding, according to two sources with knowledge of the agreement. They were not authorized to speak publicly about it.
A reduction in West Penn Allegheny's debt could also be key to Highmark's chances of securing approval from the state Insurance Department to acquire the health system.
The size of the debt reduction to which bondholders tentatively agreed is unclear. Representatives of Highmark, West Penn Allegheny, the bondholders and the Insurance Department met in Harrisburg on Wednesday to discuss the deal, the sources said.
Department spokeswoman Melissa Fox declined to confirm the meeting occurred.
“Highmark and West Penn Allegheny Health System have been in active discussions with each other, and with the bondholders of WPAHS. These discussions have been constructive,” Highmark spokesman Aaron Billger wrote in an emailed statement. He declined to comment further.
The state's largest health insurance company, Highmark is trying to acquire West Penn Allegheny and start a regional, integrated health system to compete with UPMC, the region's largest hospital system.
West Penn Allegheny on Wednesday extended agreements with Highmark and bondholders that delay any demand for immediate payment of debt and prevent public discussion of negotiations.
“In connection with West Penn Allegheny Health System's (WPAHS) proposed affiliation with Highmark Inc., these parties and certain WPAHS bondholders previously entered into standstill and nondisclosure agreements, which were due to expire on Jan. 9, 2013,” the health system stated in a statement posted online.
Hospital system spokeswoman Kelly Sorice would say only: “The parties are continuing discussions and have agreed to extend the term of those agreements.”
The Trib could not reach officials with the bondholders' trustee, UMB Bank of Kansas City.
West Penn Allegheny has bled money for years. In October, it released unaudited financial results for the fiscal year ended June 30, 2011, showing a loss from operations of $112.5 million, more than double the previous year's operating loss.
Last week, West Penn Allegheny's bondholders issued a notice of default when the health system failed to meet a deadline to release audited results for that year. The notice gives West Penn Allegheny 30 days to release statements or the bondholders can demand immediate payment of debt, a move that likely would force the health system to file for bankruptcy protection.
A plan to reduce West Penn Allegheny's debt, which Highmark produced in September, suggested asking bondholders to accept a reduction of $290 million to $399 million. The plan would unload West Penn Allegheny's pensions onto the federal Pension Benefit Guaranty Corp., which would eliminate $280 million in unfunded liability. Highmark would convert $100 million it loaned the health system into grants.
If successful, that deal could reduce West Penn Allegheny's $1.4 billion debt by $779 million, or more than half.