West Penn Allegheny bonds left behind by market rally
By Bloomberg News
Published: Tuesday, Nov. 20, 2012, 12:01 a.m.
The $100 billion market for high-yield municipal debt is rallying the most in three years despite the specter of the potential bankruptcy of the biggest tax-exempt junk issue since at least 1990.
West Penn Allegheny Health System, a five-hospital system in Pittsburgh with about $750 million of junk bonds, is struggling with deepening losses and falling revenue. There is “a high likelihood” the provider will seek bankruptcy protection or restructure its bonds, even as it discusses being acquired by Highmark Inc., one of the nation's 10 biggest health-insurance companies, Moody's Investors Service said last week.
Securities of West Penn have lost about 35 percent of their value since their sale in 2007, data compiled by Bloomberg show. Meanwhile, speculative-grade municipal bonds are earning the most since 2009. With tax-free interest rates at 45-year lows, the value of these high-yield bonds will extend continue to rise even if West Penn fails to repay investors in full, said Susan Courtney, a managing director at Prudential Fixed Income in Newark, N.J.
“Investors in the muni high-yield space are aware of what's going on with West Penn,” said Courtney, who helps manage $1.8 billion in tax-exempts, including West Penn bonds.
Gains in the $3.7 trillion municipal market accelerated in the past two weeks amid speculation that income-tax rates will rise as part of trimming the federal deficit. While municipals have earned 8.2 percent this year, high-yield has banked 17 percent, the most since 2009, according to Standard & Poor's. Debt backed by hospital and health-care revenue has earned about 11 percent.
Yet West Penn, which admitted almost 56,000 patients in fiscal 2012, has been left out of the rally.
Bonds due in 2040 traded at an average of 65.64 cents on the dollar on Monday, down from 101.8 cents when they were issued in May 2007, data compiled by Bloomberg show. The average yield on Monday's trade was 8.66 percent, compared with 5.15 percent at issue.
West Penn has made no determination on a bankruptcy filing, spokeswoman Kelly Sorice said.
Its offer was the largest tax-exempt junk deal since at least 1990, Bloomberg data show. Larger issues backed by tobacco revenue were sold with investment grades and are now rated as junk, said Daniel Solender, who helps manage about $17 billion of municipal bonds, including West Penn, at Lord Abbett & Co. in Jersey City.
West Penn had operating losses of $113 million and $75 million in the past two years, according to Moody's. The system has an unfunded pension liability of $279 million. It competes with UPMC, the region's largest health system.
West Penn was formed in 2000 to bring the five hospitals under one company after Allegheny General Hospital's parent, the Allegheny Health, Education and Research Foundation, filed for bankruptcy in 1998.
“This is a situation that's been difficult for a long time,” Solender said.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Penguins’ Bylsma wants Cup version of Letang
- Orpik: Penguins must keep their cool
- Pirates trade for Mets first baseman Davis
- Oakmont father-son team’s efforts help add Mon Valley names to police memorial
- York teen suspended for asking Miss America to prom
- Road work to cause lane closures in Mt. Lebanon starting Monday
- Hempfield native, 22, publishes with local independent press
- Court upholds EPA emissions restrictions
- Rossi: Pens sticking to power-play plan
- Latrobe woman texts searchers in Linn Run State Park to tell them she’s OK
- Alvarez struggles as Pirates fall short against Brewers