Fitch Ratings downgrades West Penn Allegheny's $726M in bond debt

| Friday, Jan. 11, 2013, 12:04 p.m.

Fitch Ratings downgraded West Penn Allegheny Health System's credit rating to one step above default, following an exclusive Tribune-Review report this week.

Fitch said on Friday that the downgrade to “C” came after the Trib's story on Thursday reporting that West Penn Allegheny's bondholders had tentatively agreed to reduce the amount of money they are owed and prevent a bankruptcy filing by the health system.

While Fitch noted in a statement on the downgrade that Highmark Inc. and West Penn Allegheny officials would confirm only that negotiations are under way, “Fitch believes that a negotiated debt restructuring appears to be inevitable to forestall insolvency.”

A “C” rating means a borrower has “exceptionally high levels of credit risk,” according to Fitch. It is the lowest rating before an organization is considered in default of its bond obligations.

West Penn Allegheny and Highmark officials declined to comment.

West Penn Allegheny officials also said this week that they and Highmark had extended standstill and nondisclosure agreements with bondholders, which prevent demands for immediate payment of $726 million in outstanding bond debt and public discussion of the talks.

Highmark, the state's largest health insurer, is trying to acquire West Penn Allegheny, Pittsburgh's second-largest hospital operator, to create an integrated health system to compete with UPMC, the largest hospital system in Western Pennsylvania. But Highmark needs to reduce West Penn Allegheny's total debt of $1.4 billion in order to gain approval for the acquisition from the state Insurance Department.

West Penn Allegheny was issued a notice of default by the bondholders on Jan. 4, giving the health system 30 days to release audited financial statements for its last fiscal year.

If the health system does not meet the 30-day deadline, it likely will be forced to enter Chapter 11 bankruptcy protection.

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or anixon@tribweb.com.

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