Moody's to Scrutinize Highmark's Credit Following West Penn Debt Deal
Health insurer Highmark's stake in West Penn Allegheny Health System, both based in Pittsburgh, has increased significantly over the past few weeks, and Moody's Investors Service is unsure if the insurer's credit mirrors the big challenges.
Moody's placed Highmark's "Baa1" and "Baa2" credit ratings on review for a possible downgrade, following the announcement that Highmark would buy West Penn's $726 million in bonds at 87.5 cents on the dollar. The review will impact roughly $1.1 billion of Highmark's debt.
Analysts said after the West Penn-Highmark merger finally closes, "Highmark's financial profile would be weakened as a result of the projected increase in financial leverage and the uncertainty of repayment of the purchased bonds," according to the report.
The total cost of the transaction currently stands are more than $1.6 billion, more than three times the original cost of $475 million. Moody's Senior Vice President Steven Zaharuk added that although the merger will improve Highmark's provider network, the steep increase in costs could limit Highmark's future investments.
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