Union confident West Penn Allegheny's 12,000 employee pensions secure
Even though Highmark Inc. officials won't discuss it, West Penn Allegheny Health System union leaders are confident employee pensions will be preserved by the health care insurer.
Neal Bisno, president of SEIU Healthcare Pennsylvania, the statewide union that represents about 2,000 West Penn Allegheny nurses and other employees, said Highmark has agreed not to terminate the employee pension plans or push them onto the Pension Benefit Guaranty Corp. once it takes control of the troubled hospital system.
Bisno's comments came on Thursday, a day after Highmark issued a statement announcing that it and West Penn Allegheny had reached agreement on a new acquisition deal that “preserves the pensions of some 12,000 hospital system employees” and restructures the system's $726 million in bond debt.
“The pensions will be maintained and the liabilities will be the responsibility” of Highmark or the corporate entity that Highmark has created to take control of West Penn Allegheny, Bisno said.
The pensions are underfunded by about $276 million, which along with the bond debt have been a significant obstacle in Highmark gaining state approval of the acquisition.
Highmark spokesman Aaron Billger declined to comment.
Highmark could submit an updated filing with the state Insurance Department as early as Friday.
Rosanne Placey, spokeswoman for the department, said on Thursday that it had not received a new filing. She declined to comment on when Highmark would submit the filing.
As part of the deal announced Wednesday, Highmark will pay bondholders $635 million, representing 87.5 percent of what they are owed. The move drops the debt from West Penn Allegheny's books and frees up about $50 million a year that was going to debt payments.
Highmark is lining up bank financing to pay off the debt, according to people with knowledge of the deal who spoke with the Tribune-Review.
West Penn Allegheny's most recent financial statement, for the three months ended Sept. 30, lists the unfunded pension liability as $276.3 million. Bisno said that SEIU has recently analyzed West Penn Allegheny's pensions and believes the unfunded liability is “significantly overstated.” He declined to provide the union's findings.
The pension funds have been a drag on West Penn Allegheny's finances since the system's formation in 2001, according to a report released on Wednesday by Moody's Investors Service.
“In addition to operating losses and debt service on a high debt load, WPAHS's cash position has been held down by pension funding,” the Moody's report stated.
The lack of sufficient cash “prevented it from making necessary investments to compete,” Moody's said.
The system lost money on operations every year since 2001 except for 2005, Moody's said. “WPAHS's ability to compete with UPMC was severely compromised by a lack of capital resources to invest in facilities and other strategies,” the report stated.
Moody's has a negative outlook on Highmark's credit rating.
In a separate report published on Monday, Moody's analysts said Highmark has a “strong financial profile driven by its strong capital position and reinforced by a solid business profile.”
Highmark has bond debt of $1.1 billion, but has cash and cash equivalents of about $981 million and access to a line of credit of $125 million.
“Highmark's operating cash flows remain strong and combined with its cash balances, has sufficient cash available to meet its obligations,” Moody's Monday report stated.
Moody's analysts could not be reached on Thursday for comment on the updated deal with West Penn Allegheny bondholders.
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or firstname.lastname@example.org. Staff writer Luis Fábregas contributed to this report.