Pittsburgh health system in tentative deal to cut debt

Tue Jan 15, 2013 7:40pm EST

Jan 15 (Reuters) - A troubled Pittsburgh healthcare system is expected to announce as soon as Wednesday that it has reached a deal to avoid a $1.6 billion bankruptcy, which would cut its debt and leave its assets in the hands of insurer Highmark Inc, according to a source familiar with the matter.

Under the tentative agreement, Highmark would offer cash payments of about 87.5 cents on the dollar, plus accrued interest, to West Penn Allegheny Health System's bond holders, the source said. The system has about $710 million of outstanding debt, which was issued in 2007.

Terms of the deal are still provisional and could change. A call is scheduled for bondholders on Thursday, according to a regulatory filing.

West Penn and Highmark, one of the 10 biggest U.S. health insurers, did not immediately return calls for comments.

A major regional healthcare system, West Penn grew out of the remains of another healthcare system that went bankrupt in 1998.

All three major U.S. credit rating agencies have cut West Penn's credit rating deeper into junk territory since November, after its $475 million merger alliance with Highmark fell apart and landed in court under the specter of a possible bankruptcy filing.

Highmark sued to stop West Penn from seeking alternate suitors that could inject cash into the revenue-shedding system. A state judge agreed with Highmark, and the two sides resumed negotiations, along with bondholders.

West Penn and Highmark came under pressure to ink a deal after bondholders notified the hospital system on Jan. 3 that it would be in technical default in 30 days if it didn't provide an audited financial statement for fiscal 2012, which ended June 30.

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