Highmark Inc. and the West Penn Allegheny Health System trumpeted Wednesday’s $725 million debt restructuring for teetering West Penn as a new beginning, but one major credit rating agency cited “close parallels” to the bankruptcy of West Penn’s predecessor company 15 years ago.

The Pittsburgh-based organizations said Blue Cross Blue Shield provider Highmark, as part of an affiliation agreement, will buy the debt at 87.5 cents on the dollar, or roughly $635 million, without West Penn having to file for bankruptcy. The agreement clears a major hurdle to an affiliation agreement, which the Pennsylvania Inurance Department still must approve.

Moody’s Investors Service, which rates the West Penn junk-level bonds Ca, likened the restructuring to the Allegheny Health and Education Research Foundation’s $1.2 billion bankruptcy that roiled markets in 1998. West Penn emerged in 2000 out of AHERF’s remains.

“While [West Penn] averted a bankruptcy filing, a debt restructuring results in a similar outcome — bondholders will receive less than the full value of their investment,” Moody’s said Thursday in a special commentary. “The failure to develop a viable health system means bondholders are left with less than full and timely repayment on their investment.”

UMB Bank of Kansas City, Mo., the master trustee for the bondholders, was scheduled to hold a conference call Thursday on the 12.5% haircut, according to a statement on the Municipal Securities Rulemaking Board’s EMMA website.

“We’re looking forward to seeing the transaction details, but it does look like a plan that does what we said was necessary, provide a form of support to help the organization,” said Standard & Poor’s managing director Martin Arrick, whose firm last month downgraded the bonds to CC from B-minus, essentially its lowest rating short of default. “When we lowered the rating to CC, we basically said that for this company to emerge successfully, they were going to need an outside party to provide support.”

Fitch Ratings last week dropped the bonds to C from CCC. “Less than 100 percent payment of principal and interest constitutes a default under Fitch’s definition, implying a rating of D,” said Fitch analyst Eva Thein.

The Allegheny County Hospital Development Agency issued the bonds with junk ratings in 2007 on behalf of West Penn, making West Penn one of the largest speculative-grade issuers in the municipal marketplace. West Penn is western Pennsylvania’s second-largest health care provider. Highmark sought West Penn to compete against the region’s dominant University of Pittsburgh Medical Center.

“Over time, the market has consolidated primarily into two systems, with UPMC having grown its market share through its provider network,” said Moody’s senior vice president Lisa Martin. “UPMC has also grown market share through its own health plan. Its provider network and insurance have enabled it to generate capital and capture its share of the market.”

Highmark’s effectiveness with West Penn “depends on the outcome of the tender process and how West Penn fits into Highmark’s overall strategy,” Martin added. “One of the key determinants is how much capital Highmark is putting into West Penn to make it compete more effectively. One of the shortfalls of the system was that it had insufficient cash.”

West Penn, which began in 2000 with a B1 rating from Moody’s, has stayed in junk grade with the agency downgrading it five times over the last five years.

While AHERF’s restructuring revolved around most Philadelphia operations and West Penn’s were solely in Pittsburgh, Moody’s saw such parallels as intense market competition, management missteps and insufficient capital investment.

Other West Penn credit threats, said Moody’s, included contracting patient volumes and significant pension underfunding.

Beyond the balance sheets and hospital sheets, soap opera-like intrigue surrounded both teetering organizations. When AHERF expanded wildly under eccentric leader Sherif Abdelhak during the 1990s, reports of spiraling debt, opaqueness and siphoning of money among hospital groups were widespread.

The Highmark-West Penn deal turned dramatically last April, when Highmark fired chief executive Kenneth Melani after a public fistfight with his girlfriend’s husband that left Melani’s face bloodied. The firing came two weeks before a scheduled insurance department hearing on the deal.

Melani, said to have considerable pull with the insurance department, saw bankruptcy as disruptive to West Penn, where he had interned. By contrast, new CEO William Winkenwerder, a former assistant secretary of defense for health affairs in the George W. Bush administration, worried about absorbing excessive debt and urged West Penn officials to file for bankruptcy before the sale.

West Penn then halted talks on Sept. 30 but returned to the table two months later when an Allegheny County court banned it from talking with other suitors.

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