Moody's Investors Service has downgraded Pittsburgh-based West Penn Allegheny Health System's bond rating further within the junk status range — from "Caa1" to "Ca" — saying it believes there is a "high likelihood of a restructuring or bankruptcy filing" in light of the flailing negotiations with health insurer Highmark.
Although senior executives and board members from both West Penn and Highmark have met to reignite talks about their planned $475 million merger, Moody's analysts said the health system's outlook will remain negative unless volumes turn around, cash is immediately injected into the system or the Highmark affiliation resumes and is completed.
Specifically, Moody's outlined more than a half dozen challenges facing West Penn. For example, the health system recently posted an operating loss of $112.5 million in fiscal year 2012, far exceeding the $75 million operating loss in FY 2011. Acute-care discharges also fell 6 percent in 2012. As of June 30, 2012, West Penn only had 62 days cash on hand, and it has roughly $279 million in underfunded pension obligations.
Moody's analysts said the downgrade also incorporated the "likelihood of less than full recovery of the bonds in the event of bankruptcy and in the absence of an asset sale," according to its report. West Penn executives have previously said they do not want to go through Chapter 11 bankruptcy.
Although senior executives and board members from both West Penn and Highmark have met to reignite talks about their planned $475 million merger, Moody's analysts said the health system's outlook will remain negative unless volumes turn around, cash is immediately injected into the system or the Highmark affiliation resumes and is completed.
Specifically, Moody's outlined more than a half dozen challenges facing West Penn. For example, the health system recently posted an operating loss of $112.5 million in fiscal year 2012, far exceeding the $75 million operating loss in FY 2011. Acute-care discharges also fell 6 percent in 2012. As of June 30, 2012, West Penn only had 62 days cash on hand, and it has roughly $279 million in underfunded pension obligations.
Moody's analysts said the downgrade also incorporated the "likelihood of less than full recovery of the bonds in the event of bankruptcy and in the absence of an asset sale," according to its report. West Penn executives have previously said they do not want to go through Chapter 11 bankruptcy.
More Articles on West Penn Allegheny Health System:
West Penn, Highmark Leaders Return to the Table
West Penn Says Highmark Remains "Best-Suited Partner" Despite Weeks of Tension
West Penn Allegheny Calls Off Highmark Merger