Dec 4 Standard & Poor's Ratings Service said on Tuesday it cut Pennsylvania's West Penn Allegheny Health System's $726 million of bonds to CC from B-minus.
S&P said its lowered rating reflects uncertainty after Highmark Inc and the agency resumed talks about restructuring the agency's debt and pension obligations.
The rating cut also reflects the agency's low and unrestricted cash and investment balances and weak financial performance, S&P said in a statement.
Despite a legal ruling prohibiting the agency from seeking other suitors "there remains significant uncertainty as to whether the parties will reach an agreement that will receive subsequent approval by the Pennsylvania Insurance Department," S&P credit analyst Cynthia Keller said in a statement.
Highmark had sought to have the agency declare bankruptcy or take other actions to restructure its debt, Keller said. At that point, discussions between the company and agency about becoming affiliated broke down.
S&P, which has a negative outlook on the bonds, said it could cut the rating again if West Penn files for bankruptcy, restructures its debt or misses principal or interest payments.
West Penn operates five acute-care hospitals in and around Pittsburgh. The bonds were issued for the health system by the Allegheny County Hospital Development Authority.