By Hilary Russ
Jan 16 (Reuters) - Insurer Highmark Inc said on Wednesday
that it reached a deal to acquire a troubled Pittsburgh health
care system while offering bondholders cash payouts of 87.5
cents on the dollar.
The out-of-court restructuring agreement will cut West Penn
Allegheny Health System's nearly $710 million of outstanding
debt and inject cash into the system, likely averting a Chapter
11 bankruptcy filing, according to a statement by Highmark and a
source familiar with the matter.
With interest, the cash tender offer amounts to about 90
Bondholders, West Penn and Highmark, one of the 10 biggest
U.S. health insurers, are in the final negotiating stages. The
agreement must still be approved by the Pennsylvania Insurance
A major regional healthcare system, West Penn grew out of
the remains of another healthcare system that went bankrupt in
All three major U.S. credit rating agencies have cut West
Penn's credit rating deeper into junk territory since November,
after its original $475 million merger alliance with Highmark
fell apart and landed in court under the specter of a possible
After a state judge blocked West Penn from seeking alternate
suitors, the two sides resumed negotiations, along with
"Paramount to our affiliation with West Penn Allegheny is
preserving provider competition and choice in health care
providers for the entire community," William Winkenwerder,
president and chief executive of Highmark, said in a statement.
West Penn's long-time rival is University of Pittsburgh
Medical Center, a more expensive provider.
"We believe our partnership will preserve this important
community asset that provides high-quality, efficient health
care for our patients," West Penn's board chairman, Jack
Isherwood, said in a statement.
Some terms of the original agreement remain, a source said,
including the creation of a Highmark holding entity to house the
insurance company and the health facility owner separately,
insulating the insurance arm from hospital liabilities.
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