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Highmark starts process of buying West Penn's $710M in debt

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Friday, April 5, 2013, 11:46 p.m.
 

Highmark Inc. has issued a formal offer to buy West Penn Allegheny Health System's $710 million in bond debt, a key piece of its deal to acquire the financially troubled hospital operator.

Highmark said on Friday that investors holding West Penn Allegheny's debt have until April 26 to agree to sell the bonds at a discount. The state's largest health insurer previously reached an agreement with bond investors to buy the debt for 87.5 cents on the dollar, for a total of $620 million.

“Highmark is making the tender offer in anticipation of moving forward with its proposed affiliation with West Penn Allegheny Health System,” the insurer said in a statement.

“The tender offer is the next step in Highmark's plan to create an integrated delivery network” that will compete with UPMC, the largest hospital network in Western Pennsylvania.

Highmark's proposed acquisition of West Penn Allegheny is under review by the state Insurance Department. The insurer has asked that the department make a decision by April 30, when Highmark's purchase agreement with the hospital system expires.

Insurance Commissioner Michael Consedine has said he is aware of the deadline but won't be rushed into making a decision.

If the department does not issue a ruling by the end of the month, Highmark's tender offer to bondholders could be extended, as could its deal with West Penn Allegheny.

Highmark has said it lined up a $600 million loan to purchase the bond debt, which it will hold on its books for three years. At the end of that period, West Penn Allegheny is expected to issue new bonds and buy back the debt from Highmark.

The insurer also has agreed to give West Penn Allegheny $475 million, of which $300 million is loans.

West Penn Allegheny and its five hospitals would be the core of Highmark's new health system, which so far includes about 150 physicians, a large outpatient medical center in Pine, and Jefferson Regional Medical Center in Jefferson Hills.

St. Vincent Health System in Erie also has agreed to be acquired by Highmark.

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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