Moody's downgrades West Penn Allegheny on likelihood of bankruptcy
By Alex Nixon
Published: Tuesday, Nov. 13, 2012, 11:36 a.m.
Moody's Investors Service on Tuesday downgraded West Penn Allegheny Health System's credit rating further into junk status on its expectation that Highmark Inc. will take the troubled health system into bankruptcy.
Moody's maintained its negative outlook on the region's second-largest hospital system as it dropped the system's rating a step to “Ca,” down from “Caa.” The “Ca” rating, which is one step above Moody's lowest rating, reflect's West Penn Allegheny's “extremely weak credit-worthiness.”
The downgrade gives West Penn Allegheny the lowest rating among the 462 health care organizations that are rated by Moody's.
“The Ca rating reflects the severity of the financial status of the system and our belief that there is a high likelihood of a restructuring or bankruptcy filing,” Moody's said in a report.
The report goes on to state that a court ruling issued Friday preventing West Penn from talking to other possible buyers “is a negative credit development.”
West Penn has about $750 million in bond debt and $280 million in unfunded pension liability. On Monday, it restarted talks with Highmark, the state's largest health insurance company, to resurrect Highmark's proposed $475 million acquisition of the system, which operates five hospitals in the Pittsburgh region.
Highmark and West Penn officials said they have talked with West Penn's bondholders and plan more discussions.
West Penn tried to get out of the deal with Highmark, accusing the insurer of demanding it reduce debt through bankruptcy. Highmark sued, and Allegheny County Common Pleas Court Judge Christine Ward granted an injunction to keep the deal together.
“We are not surprised by Moody's rating action,” West Penn spokeswoman Kelly Sorice said. “Nonetheless, WPAHS continues to believe that an affiliation with Highmark is in the best interests of both organizations and of the greater community.”
Highmark spokesman Michael Weinstein declined to comment.
In late October, Fitch Ratings downgraded West Penn's credit rating. Standard & Poor's, which is reviewing its rating on the health system, has not taken action.
The deal is awaiting approval by the state Insurance Department, which has expressed “significant concerns” about West Penn's ability to repay its debt.
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or email@example.com.
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