Fitch Ratings has placed on Rating Watch Evolving the 'BB-' rating on approximately $747.7 million series 2007A health system revenue bonds issued by Allegheny County Hospital Development Authority for the benefit of West Penn Allegheny Health System (WPAHS).
The Rating Watch Evolving indicates that the rating may be raised, lowered or affirmed. On June 28, the health insurer Highmark Inc. (Highmark) announced that it intends to enter into an affiliation with WPAHS as a first step leading to a potential acquisition. Both of the not-for-profit boards voted on June 27 to approve the general terms of the transaction. As part of the agreement, Highmark will immediately provide a $50 million grant to WPAHS to support its ongoing operations. Highmark has further committed to provide up to $475 million over the next four years, including $75 million toward medical education for WPAHS affiliated medical schools. It was announced that Dr. Christopher Olivia, the health system's president and CEO, will be leaving his role as of June 28 and will be replaced by Dianne Dismukes, who had been the system's vice president of hospital operations. Fitch believes positive rating movement (or Outlook revision) could occur depending on the specifics of the agreement. Prior to this rating action, WPAHS's bonds had a Negative Outlook.
WPAHS continues to amass significant operating losses in the current fiscal year as it implements the downsizing of its system and is facing large pension liabilities. The failure of the transaction to go forward has the potential for further downward rating pressure. Fitch will take further rating action when the details of the definitive agreement are available.
For more detail on WPAHS see Fitch's press release 'Fitch Affirms West Penn Allegheny Health (Pennsylvania) at 'BB-'; Maintains Negative Outlook, dated Jan. 14, 2011, available on the Fitch website at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
'Revenue-Supported Rating Criteria', dated Oct. 8, 2010;
'Nonprofit Hospitals and Health Systems Rating Criteria', dated Dec. 29, 2009.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research:
Revenue-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=637130
Nonprofit Hospitals and Health Systems Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493186
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