Fitch Ratings said it has downgraded West Penn Allegheny Health System's (WPAHS) approximately $726 million series 2007A health system revenue bonds issued by the Allegheny County Hospital Development Authority to C from CCC.
The rating action follows a press report that WPAHS, Highmark Inc., and WPAHS bondholders have tentatively agreed to a plan that would reduce the amount owed to bondholders and prevent a bankruptcy filing by WPAHS. Highmark and WPAHS confirm only that discussions with bondholders are underway. Fitch notes that information from management is limited due to the terms of a nondisclosure agreement among the parties.
Nevertheless, Fitch believes that a negotiated debt restructuring appears to be inevitable to forestall insolvency, given WPAHS's financial deterioration and the failure of WPAHS and Highmark to complete a proposed merger. In addition, on Jan. 3, 2013, WPAHS's bond trustee issued a notice of default regarding WPAHS's failure to release audited financial statements for the year ended June 30, 2012, which were due 180 days from the end of the fiscal year. WPAHS has 30 days to cure the default.