West Penn Allegheny Health System has 30 days to post its required audited financial report for the 2012 fiscal year to avoid default on its $726 million Series 2007 bond offering.

"As of the time of this filing, audited financial statements of the system are not available, but the system intends to continue to work with its independent auditors to finalize the same," Pittsburgh-based West Penn said in a statement on Friday.

Its fiscal year ended June 30.

West Penn, the second-largest health care provider in western Pennsylvania behind the University of Pittsburgh Medical Center, is in talks with Blue Cross Blue Shield provider Highmark, also of Pittsburgh, about a $475 million affiliation agreement.

The two organizations resumed discussions in November, two months after West Penn broke off talks Sept. 30 when Highmark's new chief executive, William Winkenwerder, insisted that West Penn file for bankruptcy protection as a prelude to the sale. The organizations are discussing a restructuring with bondholders.

West Penn's speculative-grade bond debt makes 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.

All three major bond rating agencies downgraded West Penn over the past three months. Standard & Poor's rates the bonds CC, while Moody's Investors Service and Fitch Ratings assign Ca and CCC ratings, respectively.

West Penn acknowledged in its unaudited financial report for the quarter ended Sept. 30 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.

The system reported in late October that operating losses spiked to $112.5 million in the fiscal year ending June 30, more than double the previous year's total.

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.