Teetering West Penn Allegheny Health System countersued crosstown Pittsburgh insurer Highmark Inc. over the breakup of their proposed $475 million affiliation agreement.
In Tuesday’s filing in the Allegheny County Court of Common Pleas, West Penn, whose roughly $737 million of bond debt is one of the largest junk-level issuances in the municipal market, said Blue Cross Blue Shield insurer Highmark’s “unrelenting bankruptcy and debt restructuring demands” caused a breach of the agreement, announced last fall.
Highmark chief executive William Winkenwerder in late August insisted that West Penn file for Chapter 11, to minimize its exposure to bad debt. West Penn officials called off the deal three weeks ago, prompting Highmark to sue and prohibit West Penn from talking with other suitors.
In Tuesday’s filing, West Penn, the second-largest hospital system in western Pennsylvania, warned of widespread layoffs and the termination of some medical services, according to the Pittsburgh Business Times.
West Penn also accused Highmark of stalling on the deal to push it into bankruptcy. The Pennsylvania Insurance Department must approve the deal by May 1, or Highmark can walk.
In addition, West Penn argued in court that the alleged breach of entitlement enables it to retain $200 million in loans that Highmark had advanced in anticipation of closing the deal.
But Bank of America Merrill Lynch, in a municipal commentary, said the affiliation agreement does not uphold West Penns argument.
“A material inaccuracy or breach of a representation or warrant made by either party is cause for termination, but the performance of activities that one side does not like is not listed as such. And if the agreement is not terminated, the transformation of the loans into gifts is not triggered,” the bank wrote.