Highmark Closes $604M Buyout of West Penn Allegheny Bondholders

Insurer Highmark Inc. on Monday completed a $604.2 million bondholder buyout of troubled West Penn Allegheny Health System at 87.5 cents on the dollar.

The buyout, in which Highmark acquired just over 85 percent of the outstanding principal amount of West Penn’s municipal bonds, came as Pennsylvania insurance regulators announced their approval of the merger on Monday.

With additional investments in Pittsburgh’s West Penn of about $475 million, the price tag was nearly $1.1 billion. Highmark is one of the 10 biggest U.S. health insurers.

A previous deal fell apart, landing West Penn and Highmark briefly in court and raising the specter of a possible bankruptcy filing to cut West Penn’s $710 million of debt.

A state judge blocked West Penn from seeking alternate corporate suitors, and the two sides resumed negotiations, along with bondholders.

A new deal was announced in January but still needs approval from state insurance regulators.

The new agreement also marks the launch of Allegheny Health Network. Highmark officials said in a conference call with reporters that it will be one of the largest health care systems in the United States to integrate physician groups, medical care delivery and financing through an insurer.

A major regional healthcare system, West Penn grew out of the remains of another healthcare system that went bankrupt in 1998.

All three major Wall Street credit rating agencies have cut West Penn’s credit rating deeper into junk territory since November, after its original alliance with Highmark dissolved.

Regulators approved the deal under certain conditions, including that Highmark make regular financial disclosures and that it not enter an exclusive contract with its health care providers. It also must file a “corrective action plan” if West Penn loses money.