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West Penn Allegheny Health System to gain $55M with release of its bonds in Highmark deal
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By Alex Nixon
Published: Friday, March 15, 2013, 12:01 a.m.
Updated: Friday, March 15, 2013
West Penn Allegheny Health System's deal to be acquired by health insurer Highmark Inc. is getting a little sweeter.
The financially struggling hospital network will get $55 million from a reserve fund when Highmark completes a deal to pay off investors holding about $710 million in West Penn Allegheny bonds.
“As part of the transaction with Highmark and the bondholders, a majority of the bondholders have agreed to release that security,” West Penn Allegheny spokeswoman Kelly Sorice said.
The fund was set up as a “rainy day fund” when West Penn Allegheny issued the bond debt in 2007 in case the hospital network missed debt service payments, which it never did, Sorice said.
The health system will use the money for ongoing renovation work at West Penn Hospital in Bloomfield and Forbes Regional Hospital in Monroeville, Sorice said. It may also repay construction loans taken out for those projects or for renovation work at other hospitals in the system, she said.
The extra money comes on top of $475 million that Highmark agreed to give the health system when the acquisition was announced in 2001. It's in addition to about $620 million Highmark will spend to buy West Penn Allegheny's bonds.
Highmark reached an agreement to buy the bonds this year at a discount of 87.5 cents on the dollar, a move it negotiated with West Penn Allegheny and bondholders to save the acquisition deal.
In September, West Penn Allegheny accused Highmark of breaking their deal by demanding it enter bankruptcy to reduce the debt. Highmark sued to prevent the hospital network from seeking a new buyer and won its case in Allegheny County Common Pleas Court.
Highmark plans to hold the bonds for three years and not charge the health system interest. Then West Penn Allegheny is expected to issue new bonds to repay the insurer.
The acquisition deal between Highmark and West Penn Allegheny still requires the approval of the state Insurance Department.
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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