S&P Downgrades West Penn Bonds to "CC"
Standard & Poor's Ratings Services (pdf) downgraded the health system's bond rating two notches — from "B-" to "CC" — and placed a negative outlook on the organization going forward.
The rating affects West Penn's $726 million in bonds, which are now firmly entrenched in junk status.
S&P analysts said the downgrade reflects the continued breakdown in affiliation discussions with health insurer Highmark. West Penn broke off the merger talks in September after Highmark wanted to restructure the financially ailing system through bankruptcy, which allegedly violated the affiliation agreement.
West Penn and Highmark officials have reconvened at the negotiation table, and both parties said they hope the merger can be finalized quickly before the end of the year.
S&P also pointed out West Penn's further deteriorating financial base. As of Sept. 30, the health system only had 55 days cash on hand, and outstanding debt neared $900 million. West Penn also reported a loss of $24.7 million in the most recent quarter, and the SEC said it may sue the system over an accounting error that occurred in 2008.
S&P would assign a lower rating if West Penn files for bankruptcy, restructures its debt or misses a principal or interest payment. However, if West Penn is able to finalize the affiliation with Highmark and show "evidence of tangible financial and operating benefits from the affiliation," its credit rating could make a comeback.
This is the second time S&P has lowered West Penn's credit rating this year. In May, it downgraded West Penn's bonds to "B-" from "B+".
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