Regulator Won't Accelerate West Penn Allegheny Review

Highmark Inc. and some western Pennsylvania lawmakers are pushing the Pennsylvania Insurance Department to step up its review of a proposed $475 million affiliation agreement with West Penn Allegheny Health System, but the state agency doesn't want to act so quickly.

"While the department is encouraged that the parties are working together, the department can't evaluate a hypothetical transaction or one that is not in final form," deputy insurance Commissioner Stephen Johnson wrote Highmark last week.

"Until the parties have come to an agreement on a way forward and have finalized the details of that agreement, the department cannot complete its review of the Form A filing which lacks this critical information," Johnson added.

Pittsburgh organizations Highmark and West Penn resumed talks in early November after Judge Christine Ward in the Allegheny County Court of Common Pleas prohibited West Penn from talking with other suitors.

Blue Cross Blue Shield insurer Highmark is also talking with West Penn bondholders. West Penn has about $700 million of speculative-grade bond debt making it one of the largest junk-level issuers in the municipal marketplace. In addition, West Penn's pension plan is underfunded by about $280 million.

West Penn is western Pennsylvania's second-largest health care provider, behind the University of Pittsburgh Medical Center. It evolved from the demise of its predecessor organization, the Allegheny Health,. Education, and Research Foundation, which filed for bankruptcy in 1998.

State Sen. Jim Ferlo and State Rep. Dom Costa, both Pittsburgh-area Democrats, urged insurance Commissioner Michael Considine to rule quickly. Pittsburgh Mayor Luke Ravenstahl and Allegheny County Executive Rich Fitzgerald, among others, co-signed the letter.

"We are gravely concerned that, as time passes, we will lose the valuable opportunity that an affiliation between these two entities presents," their letter said. "As conditions change at WPAHS … we believe that the prospects of the merger become dimmer. We ask that you consider imposing a deadline for the filing in order to encourage the entities to operate swiftly."

According to the Pittsburgh Post-Gazette, Highmark chief executive William Winkenwerder wrote to West Penn officials last week: "I believe we are now ready to finalize our strategy and move forward just after the New Year in 2013 ... we have a great future before us."

The companies announced an agreement last year, but West Penn called off talks on Sept. 30 after Winkenwerder, who succeeded Kenneth Melani as Highmark CEO in April, insisted that West Penn file for bankruptcy before closing the deal.

All three major bond rating agencies since downgraded West Penn, most recently three weeks ago, when Standard & Poor's lowered the system deeper into junk, four notches to CC from B-minus. Moody's Investors Service and Fitch Ratings have also lowered their ratings to Ca and CCC, respectively.

In addition, West Penn acknowledged in its Sept. 30 quarterly report that it has received a so-called Wells notice from the Securities and Exchange Commission, meaning SEC staff may take action against it over accounting discrepancies.

For reprint and licensing requests for this article, click here.
Healthcare industry Buy side Pennsylvania
MORE FROM BOND BUYER