Nov 13 Moody's Investors Service on Tuesday downgraded West Penn Allegheny Health System's bond rating deeper into the junk category, citing a high likelihood of a restructuring or bankruptcy filing.
The downgrade to Ca with a negative outlook from Caa1 affects $726 million of fixed-rate bonds the Pennsylvania-based health system sold through the Allegheny County Hospital Development Authority.
"The rating also incorporates the likelihood of less than full recovery of the bonds in the event of bankruptcy and in the absence of an asset sale," Moody's said in a statement.
The credit rating agency warned about a downgrade in September after West Penn terminated an agreement with health insurer Highmark Inc. Subsequent litigation led to a recent ruling that rejected the health system's claim that Highmark breached the pact and granted the insurer's request for a preliminary injunction against West Penn, according to Moody's.
"We believe this ruling is a negative credit development for WPAHS because it prevents WPAHS from seeking other capital partners," Moody's said.
A major regional healthcare system, West Penn has been struggling financially for years. Its $475 million deal with Highmark, one of the 10 biggest U.S. health insurers, would have given it a cash infusion and granted Highmark control of the system.
But after Highmark's former chief executive was fired in April, the new CEO, William Winkenwerder, insisted that West Penn file for bankruptcy to reduce its massive debt load before Highmark would close the transaction, according to West Penn, which terminated the deal on Sept. 28.
But the health system and the insurer issued a statement on Monday saying they met together and with bondholders to address West Penn's financial condition in order to secure approval of their affiliation agreement with the Pennsylvania Insurance Department.
"Highmark and WPAHS continue to believe that an affiliation between them is in the best interests of both organizations and of the greater community," the statement said.
In October, Fitch Ratings cut the health system's rating to CCC from B-plus.