West Penn Allegheny Health System, its bondholders and suitor Highmark Inc. have extended talks and nondisclosure agreements regarding a $475 million affiliation agreement, with an eye toward preventing West Penn from filing bankruptcy.
"In connection with West Penn Allegheny Health System's proposed affiliation with Highmark Inc., these parties and certain WPAHS bondholders previously entered into standstill and nondisclosure agreements, which were due to expire on Jan. 9, 2013. The parties are continuing discussions and have agreed to extend the term of those agreements," West Penn said in a statement posted on the Municipal Securities Rulemaking Board's EMMA disclosure website.
The extension stalls any demand for immediate payment of debt. The Pittsburgh Tribune-Review reported, without specifics, that the parties reached a tentative agreement with bondholders on a haircut.
"Highmark and West Penn Allegheny Health System have been in active discussions with each other, and with the bondholders of WPAHS. These discussions have been constructive," Highmark spokesman Aaron Billger told the newspaper.
The Allegheny County Hospital Development Authority issued $726 million of speculative-grade Series A bonds for West Penn in June 2007.
Both organizations are based in Pittsburgh. West Penn is the second-largest health care provider in Western Pennsylvania. Blue Cross Blue Shield insurer Highmark wants West Penn to better compete with the dominant University of Pittsburgh Medical Center.
On Jan. 3, West Penn bondholders, though master trustee UMB Bank of Kansas City, Mo., issued a default notice after the system missed a deadline to release audited results for 2012. The system has also received a Wells notice from the Securities and Exchange Commission, which said staff may act against it over accounting discrepancies.
The three major credit rating agencies have downgraded West Penn's bonds 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.