Moody's Investors Service on Wednesday upgraded the bond rating of West Penn Allegheny Health System to Caa2 from Ca, reflecting completion of its $604 million affiliation agreement with Highmark Inc. including Highmark's tender offer for outstanding West Penn bonds.

The two Pittsburgh organizations closed their deal on Monday after the Pennsylvania Insurance Department cleared it.

Moody's action affects about $710 million of Series 2007 fixed-rate bonds West Penn issued through the Allegheny County Hospital Development Authority. Moody's outlook remains developing, which it revised from negative in February. It said it would examine further details of West Penn's financial position under Highmark's control.

Highmark completed its cash tender at a price of 87.5% for a reported 85% of the par value of the bonds, Moody's said. A Caa2 rating reflects an 80% to 90% recovery range. "This event constitutes a distressed exchange and, therefore, a debt default under Moody's definitions," Moody's said in a statement.

Standard & Poor's on Monday lowered West Penn's rating to D from CC, with D an automatic move for any distressed exchange offer involving a bondholder haircut. Fitch Ratings, which downgraded West Penn to C from CCC in January, put that rating on credit watch evolving.

Blue Cross Blue Shield insurer Highmark is looking to compete against western Pennsylvania's dominant health care provider, University of Pittsburgh Medical Center.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.