West Penn Allegheny’s rating sinks to C, step above default
Fitch Ratings knocked West Penn Allegheny Health System’s credit rating to C and said analysts believe “negotiated debt restructuring appears to be inevitable to forestall insolvency.” The C rating is the lowest Fitch rating that does not indicate a default. West Penn Allegheny, the financially troubled Pittsburgh health system in talks to be acquired by the insurer Highmark, was previously rated CCC by Fitch. The acquisition has been closely watched nationally as one of several deals by insurers to expand their reach in healthcare delivery. West Penn Allegheny’s financial distress could also garner significant attention if talks with bondholders fail and the health system defaults on payment to bondholders, said David Cyganowski, managing director with healthcare financial advisers Kaufman Hall. Investors may hesitate to buy lower-rated healthcare bonds if such a prominent health system with such sizable debt were to default, he said, which could raise borrowing costs and limit access for lower-rated healthcare borrowers. “There is no winner in a default,” Cyganowski said. Information from West Penn Allegheny has been scant. The health system failed to release audited financial statements for the year that ended last June, which prompted a notice of default Jan. 3 that the health system has 30 days to fix, Fitch Ratings said as it announced the downgrade affecting bonds totaling $726 million. The health system has also entered into a nondisclosure agreement with lenders. Kelly Sorice, a West Penn spokeswoman, declined to comment on the rating action. “We are continuing constructive talks with Highmark and our bondholders,” she said in an e-mail.