Moody's Investors Service said it has upgraded West Penn Allegheny Health System, Pa.'s bond rating to Caa2 from Ca, affecting approximately $710 million of Series 2007 fixed-rate bonds issued through the Allegheny County Hospital Development Authority.
The outlook remains developing.
The rating upgrade to Caa2 is based on the estimated recovery value of the Series 2007 bonds relative to the original par value following the completion of a tender process.
A Caa2 rating reflects a recovery range of 80-90%. The cash tender by Highmark was completed at a tender price of 87.5% for a reported 85% of the par value of the bonds.
This event constitutes a distressed exchange and, therefore, a debt default under Moody's definitions. A distressed exchange is when (1) an obligor offers creditors a new or restructured debt, or a new package of securities, cash or assets that amount to a diminished financial obligation relative to the original obligation and (2) the exchange has the effect of allowing the obligor to avoid a bankruptcy or payment default in the future.
The developing outlook reflects the possibility of a rating upgrade or downgrade as further details of WPAHS's financial position and strategies under Highmark's control are available. The Pennsylvania Insurance Department (PID) approved WPAHS's affiliation with Highmark, allowing the organizations to move forward with strategies to reverse declining patient volumes and large operating losses at WPAHS.
