West Penn Al­legheny’s rat­ing sinks to C, step above de­fault

Modern Healthcare - - LATE NEWS -

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.

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